Need help making Tax return on rental income. What's allowed as a capital allowance?

Tomc77

I hope I've posted this to proper forum.
I have to make a tax return on a rental income. I've already met an accountant and he has told me whats allowed in terms of expenses. He wasn't very helpful with capital allowance. I know they are written off by 12.5% a year for 8 years but what is allowed?

My first problem is that I lived in house for 2 years so alot of appliances, furniture etc were purchased before I rented. My accountant suggested that I should be able to claim 12.5% for 6 years on these so long as I don't claim the first 2 years. Is this so. If so can I include pictures, cutlery crockery etc that was left in house- accountant wasn't sure

Also, can I claim the Kitchen refit as this will very feasibly need to be changed in 10years anyway. Can I claim tiling and wooden floors?

Thanks in advance
T

BillyBobWinters

Hi - i am a qualifed tax advisor with 6 years experience so I can perhaps help.

Capital allowances are available only on plant and machinery, fixtures and fittings and motor vehicles. In your case, fixtures and fittings will attract capital allowances. A rule of thumb is that anything that can be moved with altering the fabric of the property could be classed as fixtures and fittings.

I would not capitalise cutlery and crockery etc, i would class them as consumables and write them off in the year of acquistion. Typical items which would attract allowances are:-

Beds,
TVs,
Microwaves and White Goods,
Kitchens,
Garden Furnituture,
Blinds,
Showers,
Lamps and decorative items, and
Flooring.

Flooring is debatable but I would think Revenue would be harsh to disallow a claim for flooring.

Also, although you have used the items for two years, you did not personally claim capital allowances on them so the period is 8 years, not 6 as the "tax life" remains unaltered. You would claim allowances on the open market value of the items on the day you appropiate the items to the rental property.

Remember items that are an allowable deduction for income tax cannot also be classied as enhancement expenditure for capital gains tax purposes.

One final bit of advice, consider switching accountants!

Regards,

BB

Victor

BillyBobWinters wrote: »

Hi - i am a qualifed tax advisor with 6 years experience so I can perhaps help.

....

One final bit of advice, consider switching accountants!

Be careful of holding yourself out as an expert.

BillyBobWinters

No need for that response. Maybe you should refrain for being negative and try to help instead?

I didnt say i was an expert. Surely the person would like to know that the opinion comes from a qualified individual and not a cowboy?

Tomc77

Thanks very much BillyBobWinters,
I have trawled the web, read every piece of garbage from the Revenue and met an accountant and you're the first person who was able to give me straight answers. You're wasted giving free advice. I hope you can bill someone for the time spent helping me!!!!

PS I appreciate the fact that you informed me of your Tax backround. I also think Victor was trying to help you. He's trying to protect you and the site in case I try to blame you or the site for misinformation when I get hauled in front of Revenue!!!

Thanks again
T:D

Tomc77

One final question for BBW or anyone else. I had a deck fitted in garden. I would think this to fall into same category as a kitchen as technically it can me moved. Is this assumption correct. My accountant said he thought it would be an enhancement expenditure.

Thanks in advance
T

BillyBobWinters

Enhancement expenditure is expenditure that is recognisable at the date of sale - so yes your accountant would be correct but this is again a grey area.

I would argue that the same rules apply as something like a kitchen or dining table - the decking therefore could be classified as fixtures and fittings and therefore will attract capital allowances at 12.50%.

It is a grey area though

johnjoe21

Hi guys,

May not exactly fit the discussion but its in the same realm and I'd be interested in hearing BillyBobs opinion.

My girlfriend bought an investment property with her SSIA money a couple of years back. She was unsure of how to go about registering, being tax compliant etc at the time but a friend said that if the mortgage interest did not exceed the rent received she would not owe anything.
I'm not sure that this info is correct so my questions are this:

1) How does she go about registering ?
2) Given that she should have registered a while back will there be consequences such as fines, disallowed expenses etc
3) anything else she needs to know

thanks in advance

Tomc77

Thanks again BillyBob,

Once again you were very helpful. I think I'll go for the deck being a "fixture and fitting" approach as it suits me best. I assume that the revenue cannot punish you for an assumption such as this and would only disagree and dissallow the claim.

For JohnJoe 21:

I'm no tax expert but I think you're girlfriends friend was incorrect. I assume you mean that if the rent received was less than mortgage interest paid she'd owe nothing. She still need to make a tax return. You must have registered with the PRTB (prtb.ie) in order to be allowed to offset your mortgage interest against rent. The PRTB does allow you to register a lease in retrospect providing the tenant is still there. If they have left you can't register with them and so can't interest relief ( I am open to correction on this- but that's what they told me). I also think that this rule about registration with the PRTB being necessary only came in in 2006? I'd recommend she talks to an accountant (not mine!!) or a tax advisor before contacting revenue. I'm sure BillyBob knows much more about the steps you can take.

T

BillyBobWinters

Tomc is correct. Previously, prior to 2006 you more or less didn't have to submit a tax return if the interest charge was higher than the rent recieved. However as Tomc said, they brought in this PRTB registration rule and can disallow a claim for mortgage interest deduction if the property is a residential letting and the letting is not registered with the PRTB.

Registration with the PRTB originally came in in 2002 but the tax rules amended in 2006 - that is why everyone is know taking notice.

Your girlfriend should go to www.prtb.ie and complete the registration form. The fee is €70 normally, but €140 if late.

For income tax purposes, you only need to submit an income tax return if you are a "chargeable person". In summary this would only be someone who has net income derving from a source which is not covered by your tax credits - therefore if a case v loss arises, no need to make a return.

I would however recommend that the returns are done annually and the loss is returned to Revenue. Therefore in the years where you are in profit, you have at lease "booked" in the previous losses and no tax will arise as losses brought forward are an allowable loss against current rental profits.

The return that is needed is a form 12. You would not need to register for income tax.

johnjoe21

Tom and BillyBob thanks for the replies.

Ok so let me try and get this straight (and I'm not trying to get tax advice here on the cheap - I just don't want to get stung by a Tom-like accountant)

The order of stuff to do is:
1. Register with PRTB
2. Send in a tax return regardless of the fact that a loss is made

Question:
She has had it two years so can she just register tenancy for last year and make return for last year ?
I'm not sure if its been same tenant for the whole time.

And lastly....would you recommend an accountant for this and if so what costs are we talking ball park so she doesn't get ripped off.


thanks a bunch by the way this is a great help.

BillyBobWinters

Hi -

I would complete and prepare a rental income computation for 2006 and calculate the loss/profit. The loss can then be carried forward to 2007. You will of then registered the tenancy with the PRTB in respect to the 2007 year so the mortgage interest deduction is valid.

I would then compute the income tax return in respect to 2007 and submit same. I would not do this for 2006. I would also allow the interest deduction for 2006 - this is strictly not allowed but i think Revenue will not review the initial year as it could be construed as being harsh, they are more likely to focus on future years.

To prepare an income tax return and rental income tax computations should cost around €350 - that is what I would charge and i would retain that fee on an annual basis.

Bebra

I have a couple of more questions on capital allowances. I bought a new apartment to let, and I'm wondering can I include the fitted kitchen,electric shower etc, as capital allowances? Also how are the likes of these items considered when it comes to stamp duty (I'm thinking VAT) and CGT? There was also an allowance from the builder for painting, tiles and a fireplace, is there any way of claiming these as expenses? And finally where could I get a list of prices for all such items? I would much appreciate any help on this.

Cc_Donegal

Hi I know this is an old post but just seems to be a good starting place for me!

I have to do tax returns on what was our main private residence until recently and is now rented out as we had to move elsewhere for work!

anyway I think I have made a list of all the items in the house deemed as fixtures and fittings but just wanted to check a couple of things if anyone has any advice!

Is an alarm included for capital tax allowance?
Is the boiler (we had a high end condensing boiler fitted shortly before we moved out)
There is fitted office furniture and a new solid oak kitchen can they be included?
There was a new deck installed is that included?
Is a garden shed a fixture?
Finally can I assume that we should have contacted revenue to get our TRS cancelled?
Also looks like the total is going to run to about 30k which is obviously high if it was really an investment but we had done it for ourselves with top class furniture etc is this going to cause a problem?

Any advice is much appreciated Thanks! - gonna pst this as a new item to see if more likely to get an answer apologies if anyone sees it twice!

CC

LHPHB

Old thread I know but I found this to be fairly insightful - <snip>

MOD NOTE

Please don't drag up zombie threads. Link removed as it appears to answer a question nobody asked.