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Rental property paying off mortgage and stopping rental

  • 21-08-2014 12:17am
    #1
    BionicRasher
    Registered Users, Registered Users 2 Posts: 2,820 ✭✭✭


    So we have a house and we rent it out. It has 4 years left on mortgage so I was thinking of paying off the mortgage and stopping rental as tenants are due to move soonish anyway. That way I think I can save a few bob on taxes and also on the mortgage interest.
    My parents want to downsize and would like to maybe move to the house. I don't expect them to pay me any rent and I would see them staying indefinitely and I would only expect they will pay for the upkeep etc to the house and no more. Is this possible in the eyes of the taxman or is there complicated tooing and froing ? Is there any reason why I am not allowed to do this or will I be hit with some kind of parachute payment of tax?

    Really never understood taxes in Commerce classes 25 years ago in school and I have a serious aversion to tax forms and the wording within makes very little sense so if anyone can explain or point me in the right direction in layman's terms that would be great


Comments

  • #2
    BionicRasher
    Registered Users, Registered Users 2 Posts: 2,820 ✭✭✭BionicRasher


    BionicRasher wrote: »
    So we have a house and we rent it out. It has 4 years left on mortgage so I was thinking of paying off the mortgage and stopping rental as tenants are due to move soonish anyway. That way I think I can save a few bob on taxes and also on the mortgage interest.
    My parents want to downsize and would like to maybe move to the house. I don't expect them to pay me any rent and I would see them staying indefinitely and I would only expect they will pay for the upkeep etc to the house and no more. Is this possible in the eyes of the taxman or is there complicated tooing and froing ? Is there any reason why I am not allowed to do this or will I be hit with some kind of parachute payment of tax?

    Really never understood taxes in Commerce classes 25 years ago in school and I have a serious aversion to tax forms and the wording within makes very little sense so if anyone can explain or point me in the right direction in layman's terms that would be great

    Anyone have any information?


  • #3
    2ndcoming
    Registered Users, Registered Users 2 Posts: 3,573 ✭✭✭2ndcoming


    It's hard to see what exactly you're suggesting.

    The mortgage interest issue surely is between you and your lender, although with four years left on a mortgage I would have thought you would have all the interest paid and be paying back purely capital?

    Stopping renting it out to save on tax makes zero sense, you only pay tax on the basis you have an income. Removing an income source so you won't have to pay tax on that income is kind of cutting of your head to save your nose if you know what I mean.

    Like if I had no job I would be paying no tax, but that's only because I would have no earnings.

    Also, whatever you charge your parents while you own the property would still technically be rental income, whether it just goes towards upkeep or otherwise, it's money you receive in relation to a property you own.


  • #4
    BionicRasher
    Registered Users, Registered Users 2 Posts: 2,820 ✭✭✭BionicRasher


    2ndcoming wrote: »
    It's hard to see what exactly you're suggesting.

    The mortgage interest issue surely is between you and your lender, although with four years left on a mortgage I would have thought you would have all the interest paid and be paying back purely capital?

    Mortgage Interest Relief for 2013 was €963 so is that the interest I pay each year? If I pay off the mortgage I wont have to pay this interest anymore - So thats where I think I may save there but maybe I am wrong
    2ndcoming wrote: »
    Stopping renting it out to save on tax makes zero sense, you only pay tax on the basis you have an income. Removing an income source so you won't have to pay tax on that income is kind of cutting of your head to save your nose if you know what I mean.

    Like if I had no job I would be paying no tax, but that's only because I would have no earnings.

    But I pay average €800 per year to the tax man on my rental income. I complete a Form 11 each year and pay the tax man so if I dont have any rental income then I dont have to pay that tax anymore - am I not correct there?
    I dont make any profit on this rental as it ends up normally costing more for upkeep and tax etc than I get in for the rent. I think I would pay about €25 per month out of my pocket in total to cover everything (now I know thats not bad as I am getting my mortgage essentially paid off but if I could stop that and also have somewhere for the parents to live then I am killing two birds right there!)
    2ndcoming wrote: »
    Also, whatever you charge your parents while you own the property would still technically be rental income, whether it just goes towards upkeep or otherwise, it's money you receive in relation to a property you own.
    I wont be charging my parents - thats the point. I will be essentially giving them the house to live in and they can pay the bills like gas and electric and if a wall needs painting or if a dishwasher needs replacement they will look after that also.

    So the scenario is.
    1. Current tenants (renters) move out in 3 months
    2. I pay off mortgage
    3. I dont have any rental income so I dont pay any more taxes for the rental property
    4. Parents move in to the house
    5. parents look after the house

    So is this possible or is there any capital gains tax (or whatever its called) or can I even do this legally
    Any information or ideas appriciated


  • #5
    2ndcoming
    Registered Users, Registered Users 2 Posts: 3,573 ✭✭✭2ndcoming


    I see what you mean now.

    You'd be taking a fair financial clip yourself but if you feel you can cover it go for it. Again, you would have to talk to your lender about paying off the mortgage early, they probably will charge you a considerable fee to cover the lost interest and you won't get any tax relief on that.

    If you've only four years to go and renting it out covers it then it would cost you half as much (ie rent less the tax on that rent at the highest rate) in the long run as paying it off yourself but if you're prepared to take that hit you might as well go ahead.

    It's more of a personal finance question as there's not really any tax implications.


  • #6
    2ndcoming
    Registered Users, Registered Users 2 Posts: 3,573 ✭✭✭2ndcoming


    BionicRasher wrote: »
    Mortgage Interest Relief for 2013 was €963 so is that the interest I pay each year? If I pay off the mortgage I wont have to pay this interest anymore - So thats where I think I may save there but maybe I am wrong

    The mortgage interest relief figure is most likely not the actual figure for mortgage interest for the year, you should be able to get the true figure from your mortgage provider. You would lose out on that mortgage interest relief if you are paying it off yourself.


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  • #7
    nompere
    Registered Users, Registered Users 2 Posts: 1,678 ✭✭✭nompere


    Giving advice in relation to property transactions is not allowed here - so I'm not going to do that.

    I do think you should talk to a tax consultant/solicitor/accountant and ask him or her to explain the consequences of allowing your parents to have free use of your property.


  • #8
    BionicRasher
    Registered Users, Registered Users 2 Posts: 2,820 ✭✭✭BionicRasher


    nompere wrote: »
    Giving advice in relation to property transactions is not allowed here - so I'm not going to do that.

    I just really wanted to know if there is any kind of tax implications on allowing parents to stay in a house I own even if its not my primary residence

    No transaction taking place other than me paying off my mortgage


  • #9
    nompere
    Registered Users, Registered Users 2 Posts: 1,678 ✭✭✭nompere


    BionicRasher wrote: »
    I just really wanted to know if there is any kind of tax implications on allowing parents to stay in a house I own even if its not my primary residence

    No transaction taking place other than me paying off my mortgage

    It's possible. Ask a professional.


  • #10
    BionicRasher
    Registered Users, Registered Users 2 Posts: 2,820 ✭✭✭BionicRasher


    nompere wrote: »
    It's possible. Ask a professional.

    Back to square one so :(

    I will see if I can find someone that can advise and post some details here maybe if thats ok


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