Tax liability on rented property

vibe666

we bought a house in Navan at the start of 2007, but 2 years ago, due to changes in our circumstances (i.e. having kids), the reality of long commutes to Dublin for work, plus child minding costs and the idea that we would effectively hardly see our child other than dropping him off and collecting him from a child minder, spurred our decision to move closer to work.

Anyway, with our house not being worth anywhere near worth what we paid for it, or what we would get if we tried to sell it, the only option (other than handing back the keys) was to rent out the house in Navan and rent somewhere closer to work, which we did, 2 years ago.

the rent we get is around 700 a month which falls about 200 euro short of the current cost of the mortgage, but when we take everything into account (less travel time & costs, plus more time with our son), it was worth doing and paying the difference.

unfortunately, I've now done my 2012 tax return and due to our 'rental income' I apparently now owe the tax man over €2700 for the year.

I'll be honest, I really hadn't anticipated any of this, i've never ever had anything but tax refunds and I don't know where I'm going to get the money from to pay it.

Is there any other alternative arrangements that can be made or does revenue expect the full amount before the November 14th deadline 'or else'?

Pawwed Rig

That sounds like alot for 1 year. Are you sure you have taken all the deductions allowable? Have you hired an accountant?

TheBoffin

Revenue treats all issues on a case by case basis. They are reasonable people. It is important you talk to them and make them aware of your difficulty. Go to them with a problem and a plan. Outline what you can do reasonably to remedy the situation and ensure you can stick to it.

vibe666

Pawwed Rig wrote: »

That sounds like alot for 1 year. Are you sure you have taken all the deductions allowable? Have you hired an accountant?

this has come from my accountant.

When i asked them about it they said "liability arises due to your rental income which was not in previous years' tax returns. Your rental income of €7,464 is subject to tax at 41%, USC at 7% and PRSI at 4%."

Pawwed Rig

Ah ok. So assuming you had €16,800 of rental income which after deductions was €7,464. If it is 2 years of a liability it sounds a little bit more reasonable. TheBoffin gave some good advice. Contact Revenue and discuss it with them.

Eileen47

is your accountant taken your mortgage payments on the rental property as a deduction against the income you recieve as 75% of your mortgage payments are allowable as long as you are registered with prtb.

honestly do not worry you are small fish to revenue with a liability of 2700. just ring the revenue explain you cannot afford it and you can arrange to pay them by direct debit over a number of months.

also if your paid preliminary tax payment last year then you should ask your accountant why he hadnt picked up that there would be a greater liability this year

murphaph

If you're PAYE and only have this modest rental income each year you should file on a form 12 if possible. It may not be now that you have 2 years tax to pay. Ask revenue because filing under a form 12 means NO PAYMENT is due by the 14th as the liability can be dealt with by way of a reduction in your 2014 tax credits. Be up front with revenue and ask them can you do it this way as you have no cash.

sunnysoutheast

vibe666 wrote: »

this has come from my accountant.

When i asked them about it they said "liability arises due to your rental income which was not in previous years' tax returns. Your rental income of €7,464 is subject to tax at 41%, USC at 7% and PRSI at 4%."

Has your accountant been responsible for working out/validating that you have claimed all allowable expenses for rental activity or are they just working from figures you gave them?

I ask because USC is applied on the interim amount of gross rental income minus allowable deductions before capital allowances (and losses carried). PRSI and tax include the capital allowances, so it shouldn't be the same base figure.

murphaph

sunnysoutheast wrote: »

Has your accountant been responsible for working out/validating that you have claimed all allowable expenses for rental activity or are they just working from figures you gave them?

I ask because USC is applied on the interim amount of gross rental income minus allowable deductions before capital allowances (and losses carried).

And the PRSI looks suspect as well. The rules change from (I think) January 2014 on (could have been 2013 but definitely not before then) but until then PAYE taxpayers are exempt from further PRSI contributions on unearned income like rent.

riclad

MY friend works ,is on paye,
rents apartment out,
AFTER mortgage 75 per cent interest ,
expenses, service charges, she makes no profit.
SHE files a tax return ,as a self employed ,person,
even though she is on paye ,works, 9-5 ,
in order to declare her income as a landlord.

she has paid no tax on rental income,for the last 5 years.
rent is 6k, mortgage 12 k .
ie she makes no profit.

http://www.revenue.ie/en/tax/it/leaflets/it10.html

http://www.revenue.ie/en/tax/it/leaflets/it10.html#section2

- Self Assessment applies for Income Tax purposes to:

Self-employed persons (i.e. people carrying on their own business including farming, professions or vocations)
Persons receiving income from sources where some or all of the tax cannot be collected under the PAYE system, for example:
profits from rents,


she pays tax,prsi etc the same as anyone else in the job where she
works,
she sent tax return in,
after 4 months she got letter from tax office ,
tax bill ,liability, zero euros,nil.

YOU need letter from bank every year mortgage paid,
interest paid.

the tax form is pretty easy to fill is as alot of it concerns ,
stocks ,shares ,etc ,
which doesnt apply to you.

apartment is worth 70k now,
loan is about 130k.

YOU pay tax on profit you make,
rent minus expenses, 75 per cent loan interest, service charges,
maintenance,
tenant registration fees.
if you make 100 euro profit in 2012,

they,ll charge you tax on the 100 euro,
maybe 21, or 40 euro.

i don,t think rental income has any effect on your paye,
unless you are making a large profit, as a landlord.


Its more accurate to say ,your profit on rental property is subject to tax,

in theory you could have a rental income of 100k, and pay
zero cent tax,
if your allowable expenses in regard to the rental unit, were 105k.

ie you are taxed ON the profit you make after all expenses are taken out of the income.


if they taxed on rental income alone 1000,s of landlords would be out of business.

you enclose bank statements with the tax return to show loan interest ,paid,
and the total amount paid on the loan,
eg capital paid.



simply add up your expenses last year, deduct them from the rent ,
see how much profit you made.

you can claim 75 per cent of interest paid on the loan. ,as an expense ,

first 11 years of a mortgage,

most of the loan payments is interest,
then each year the amount of interest vs capital payments ,declines .

capital is money paid off the actual loan amount.

Moonbeam

Is the interest rate on the mortgage really low?

Fiskar

Good post Riclad,
that is the correct way to determine what comes off the income received to get down to the actual profit if any that tax may be due on.

riclad

http://www.revenue.ie/en/tax/it/leaflets/it70.html#section4

You can claim 75 per cent of the loan interest as an expense,
my friend pays about 10k interest ,per year approx.
so she can claim 7500 k as an expense ,
on her self assessment tax return.
she got an accountant to check over her tax return ,before she sent it to the tax office.

like most business,es you are taxed ,on PROFIT,
after allowable expenses in the tax year.

did you claim trs tax credits on your mortgage,
before you started renting out the house.?

either you or an accountant fills out your tax return,

you cannot claim any tax allowances on loan interest , as a landlord ,
unless you are registered as a landlord with the prtb,

http://www.prtb.ie/

the tax office will likely ask you to provide a receipt or another document to prove you are registered with the ptrb,

the fee is allowed as an expense on your tax return.

vibe666

I'm self employed as an IT contractor within a ltd. company structure which is all managed by my accountants.

2012 is the first full year that the house was rented out, with only the last month of 2011 rented out when the tenant first moved in as we were living in it until then ourselves.

we are on a tracker mortgage and we are wary of making any waves as i'm sure that the bank will take any opportunity to get us off the tracker if at all possible, but the only way we can afford not to live there is with the tracker as otherwise the mortgage would be so high that we would have no choice but to move back in ourselves, which really isn't an option for us in our current situation as my wife is 36 weeks pregnant with our second child and has been off work sick for the last 3 months due to a very difficult pregnancy.

just to say also, that when I say I can't afford to pay the tax bill, what I mean is that i could find it but that it would financially cripple us over the xmas period and into the new year right when we have a new baby coming. I can find the money to pay it if I have to, but it really would sting a lot, particularly on a property that is already bleeding us dry as it is.

Pawwed Rig

vibe666 wrote: »

2012 is the first full year that the house was rented out, with only the last month of 2011 rented out when the tenant first moved in as we were living in it until then ourselves.

If that is the case then I would think the tax bill relates to something other than the rental property as it sounds too hight for the level of rent you are receiving, however I would need to see the relevant documentation to determine for sure.

sunnysoutheast

vibe666 wrote: »

I'm self employed as an IT contractor within a ltd. company structure which is all managed by my accountants.

2012 is the first full year that the house was rented out, with only the last month of 2011 rented out when the tenant first moved in as we were living in it until then ourselves.

we are on a tracker mortgage and we are wary of making any waves as i'm sure that the bank will take any opportunity to get us off the tracker if at all possible, but the only way we can afford not to live there is with the tracker as otherwise the mortgage would be so high that we would have no choice but to move back in ourselves, which really isn't an option for us in our current situation as my wife is 36 weeks pregnant with our second child and has been off work sick for the last 3 months due to a very difficult pregnancy.

just to say also, that when I say I can't afford to pay the tax bill, what I mean is that i could find it but that it would financially cripple us over the xmas period and into the new year right when we have a new baby coming. I can find the money to pay it if I have to, but it really would sting a lot, particularly on a property that is already bleeding us dry as it is.

First off I hope the rest of the pregnancy goes well for you all. I guess you need all this like a hole in the head at the moment.

In terms of next steps I would check that you have claimed all allowable expenses and deductions for the rental activity, I am not sure how closely if at all your company accountant has been involved in this.

The bit I find strange is that the income tax, PRSI and USC are apparently being calculated on the same base figure - have you included any capital allowances/depreciation for wear and tear? Are you effectively including thirteen months 12/2011 and 1-12/2012 on the one return? At 700/mo that is €9100 for which a taxable income net of allowances of €7400 seems high to me.

We had a tracker with pTSB when we rented out our PPR and there were no issues with keeping it (confirmed it in writing). Not sure if that helps you or not, are the bank aware that the house is now rented?

vibe666

sunnysoutheast wrote: »

We had a tracker with pTSB when we rented out our PPR and there were no issues with keeping it (confirmed it in writing). Not sure if that helps you or not, are the bank aware that the house is now rented?

no, we haven't mentioned it for fear they would use it as an excuse to get us off the tracker.

we've had a really crappy couple of years since we moved and we're literally only just hanging on by the skin of our teeth at the moment. the first property we rented as tenants in nov/dec 2011, we were booted out of after a year as the landlord was basically doing what we were but then wanted to move back in himself even though we had a verbal agreement that it was to be a long term let.

we couldn't find a decent home then to move into and the place we ended up in turned out to be full of mould and rot and we had to get the environmental health officer out and basically condemn the place in order for us to break the contract without fear of losing our deposit and we ended up moving out again 6 weeks after moving in, this time thankfully into a much nicer home, so all in all we lived in 4 different houses over the course of 14 months, which was a real strain, physically, emotionally and financially. :eek:

sorry, bit of a whinge there, i know plenty of people have it a lot tougher.

Mrs OBumble

FWIW, I have a house overseas, tiny mortgage on it so pay very little interest. I'm sure that I'm claiming everything I can, and I end up paying Revenue about 2.5k every October. So OP, your payment sounds high given that you'll be paying a lot more interest than me.

riclad

can you just post how much you paid, on interest ,say from jan 1st,
to december last year.
the capital you pay has no effect on your tax bill,
MORTGAGE paid is interest ,plus capital.
you can claim house insurance as an expense too.


1700 tax allowances seem very low to me,
that means you paid less than,
1400 interest on your mortgage last year.
approx.?
eg house insurance would be 350 on average ,
did you claim that as an allowance?
prtsb fee plus accountants fee on your tax return ,
would be 200, plus 200 ,

400 euros at least.
thats 750 ,
before you add in tax allowance for loan interest.

if tax office do not SEE a letter,or receipt for prtsb registration,
they DISALLOW all tax allowances for mortgage interest.
in regard to a landlords tax return.
my friends loan,
First ten years 90 per cent of loan payments were interest,
less than 10 per cent was capital payment

your prsi is nothing to do with how much you pay in tax for your rental income.







it sounds like your mortgage is at least 800 euro per month.

so even 2000 euros interest sounds VERY low to me.

vibe666

I just checked and the interest paid for 2012 was €5493.26 in total.

The rent we get in is actually €725 and the mortgage payments in 2012 fluctuated between €900-€960.

I'm starting to think my accountants aren't doing a very good job.

Citizenpain

You sure its not preliminery tax for 2013 as well?

Are you still getting TRS on the mortgage interest?

vibe666

Citizenpain wrote: »

You sure its not preliminery tax for 2013 as well?

Are you still getting TRS on the mortgage interest?

no, it's just my tax return for 2012. i do one every year around this time, but this is the first time i've had a bill rather than a rebate.

not getting TRS, we informed revenue when we moved out.

basically, we filled out an online tax return on my accountants website and they came back to me once it was all processed to say we owe €2799.30.

there were entries for wear and tear and that kind of thing, but nothing about the PRTB registration and claiming for 75% of the interest on the mortgage, so I'm starting to think they just aren't doing a very thorough job.

Pawwed Rig

Call your accountant and ask him

I carried a watermelon

murphaph wrote: »

If you're PAYE and only have this modest rental income each year you should file on a form 12 if possible. It may not be now that you have 2 years tax to pay. Ask revenue because filing under a form 12 means NO PAYMENT is due by the 14th as the liability can be dealt with by way of a reduction in your 2014 tax credits. Be up front with revenue and ask them can you do it this way as you have no cash.

You can only file a Form 12 Tax Return if your taxable rental income is below 3175 in the tax year, any higher and you have to file a Form 11.

vibe666

Just to update on this and say a big thank you to everyone who posted in the thread.

I have a feeling that I was only dealing with a very low level bean counter in the accountants, so armed with the info i got in this thread, i made a very subtle complaint to the accountants and as soon as I mentioned the PRTB and 75% interest expense everything changed very quickly. I was passed on to someone more senior who had me all sorted out the same day.

I've still got a liability of 700 odd euro, but that is a lot more manageable, so thanks to boards.ie I've saved myself over €2000.

Monokne

vibe666, great news! Well done!

I am hunting around this forum for some info, thought the knowledgeable posters in this thread may have some info for me.

I own an apartment in Swords on which I pay a mortgage of €550 or thereabouts a month.

I currently live in a house with my wife and baby that we own. I rent the apartment out to a friend of mine for €550, basically what it costs me every month, because I'd rather have someone in there I know and trust and make no profit on it than bother letting it out properly.

We're registered with the PRTB so in that sense it's all above board.

However, I hadn't even considered I'd have to pay tax on it until someone mentioned it to me. I am of the understanding you are only supposed to pay tax on the profit you make, but I'm unsure of how I'd calculate this - is it how much rent I get v what my mortgage is? Or how much rent I get v how much interest I'm paying on my mortgage?

To be perfectly honest, I'm half tempted just to keep going and not mention the apartment for tax purposes but the last thing I want is to end up with a huge tax bill a few years down the line...

Any one have any helpful advise for me?

Cheers!

Citizenpain

Simple P&L
Rental Income in calendar year
Minus
1. 75 % of Mortgage Interest Paid
2. Any other expenses related to the rental - Insurance, rates - repairs etc
3. Capital Allowances (12.5% of cost of Furniture and appliances per year for 8 years)

Whatever number this throws out is taxed at your marginal rate plus PRSI & USC

http://www.revenue.ie/en/tax/it/leaflets/it70.html

riclad

its simple ,
tax is calculated on profit,
profit is rent minus expenses, insurance, prtb fee,75 per cent loan interest ,repairs, agents fees,advertising fees etc
ANY other expenses on the property, ie service charges.
see my previous posts.
you need to provide proof of prtb registration ,
otherwise ,you,ll get no deduction tax credits on any LOAN INTEREST .
lets say profit is zero,euros , 10 cent
or 10 euro.per year,
BY LAW you must fill out a self assessment tax form as a landlord every year you rent out the house.
you can be fined for filing no tax return ,
even if you made 75 cent profit on the unit .

if joe bloggs runs a shop and makes 10 euro profit,
he still has to make a yearly tax return.

Monokne

I've just spent €500 repairing the boiler which would count as expenses related to renting it...but never got a receipt! Any idea if they ask for those kinds of things?

I should probably get moving on it

riclad

rent minus mortgage is not the profit ,
its not as simple as that.
you could end up paying a large fine for not filing,
my friend filed a tax return after 3 years,
was not fined,
they sent her a tax bill 2012 ,
75 cent taxable income.

will not be tax,ed. as income too low.
she has loan 12k, rental income 6k.


unless you get a receipt you cannot PUT it on your tax return.

Any smart person can fill out a tax return,
the hard thing is getting all the reciepts,statements from bank, prtb,
you have to hold onto all documents, reciepts for 5 years for the tax office,
Even if you make 50 cent profit per year.

you might get a tax bill for 10 euro, if your profit is very low.

in 20 years you will make a profit anyway, and you,ll have to pay some tax.

you can claim 4 years trs on loan interest , tax refund ,if you lived there before you started to rent it out.
ring the boiler company up, ask for a receipt.

Monokne

Just thinking about it, given how little rent I get and the cost of repairs, interest, management fees, etc, I doubt I'll be paying much. :-)