Realistically - how much will it cost me to rent out my house

rightoldpickle

I'm not sure what figures I should be looking at. I thought that the tax was only payable on the profit (which in my case there is none as the rent wont cover anywhere near the mortgage)

Rent hopefully will be 900, we are both in the lower tax bracket.

I have no idea where to begin in trying to figure it all out so any advice is much appreciated.

thanks

athtrasna

from : http://irishlandlord.com/index.aspx?page=infocentre_article_view&id=8

Tax on rental income - the most common questions Go back to tax centre

Is rental income liable to tax?
Residential property investment is a business, and like any business is liable to taxes.

How is rental income taxed?
Rental Income is taxable under the Irish tax system. For most cases of rental income, the amount taxable can be calculated as follows:

Gross Rental Income less Allowable Expense less Capital Allowances = Taxable Rental Income.

What taxes are landlords liable for?
Landlords are liable for the following taxes:
· Income tax on rental income
· Stamp duty on property purchase
· Capital gains tax on disposal

Income Tax
Rental income on investment property is subject to income tax. It is therefore vitally important to maintain proper records of rents received and details of expenses incurred. All receipts should be kept for inspection by the revenue if required.

Stamp Duty
Stamp duty is a tax payable on the purchase of property. Changes in the 2007 budget have reduced the amount of stamp duty payable. The current stamp duty rates are:

Property Value Rate
Up to €125,000 Exempt
Next €875,000 7%
Balance 9%

Click here for stamp duty calculator

Capital Gains Tax
The sale of an investment property is subject to capital gains tax. The current rate of capital gains tax is 20%. Certain costs are allowable when calculating the liability for capital gains tax:
· Capital spent on enhancements to the property
· Costs incurred in the purchase and sale of the property such as legal fees and estate agents fees.

Can I offset any expenses?
Yes, certain expenses are allowable against rental income when calculating your tax liability.

Allowable Expenses
Certain expenses incurred may be used to reduce the income tax liability on rental income, these include;
· Qualifying mortgage interest
· Management fees
· Advertising expenses
· Estate agent fees
· Insurance premiums
· Legal fees for drawing up leases
· PRTB registration fee
· Mortgage protection policy premium
· Accountants fees for preparing rental accounts
· Refuse and other service charges – if paid by the landlord
· Cost of repairs and maintenance – this covers repairs and general maintenance of a property, however it is not possible to claim for your own time, for example, cutting the grass
· Wear and Tear (see capital allowances)

Note: Pre-letting expenses are not an allowable deduction. If you do repairs to the property yourself, it is not possible to claim your own labour as a cost.

Important: Properties must be registered with the Private Residential Tenancies Board in order to claim mortgage interest as an expense!

Capital Allowances
Relief against income tax is allowed on items that are purchased to furnish the property. The current allowance is 12.5% of the cost over 8 years (effective since Dec 2002) For example, if you purchase a suite of furniture for €1,000 a capital allowance of €125 per year can be off-set against the rental income for tax purposes for the next 8 years.

With effect from 4 Dec 2002 the allowance is 12.5 % per year over 8 years

· For the period between 1 Dec 2001 and 3 Dec 2002 the allowance was 20% per year over 5 years

· Prior to 1 Jan 2001 the allowance was 15% per year for the first 6 years and 10% in the 7th year

A profit on one rental property can be offset against a loss on another property owned by the same landlord.

Losses on rental income
A loss on rental income can be carried forward to the next tax year but it cannot be offset against tax on other income e.g. PAYE
A loss on rental income can only be carried forward against future rental profits. The loss must be claimed in the relevant tax year and carried forward. If the loss is not claimed in the relevant tax year it cannot be used in a future tax year.

Tax on rental income - how is it paid?
Profit on rent is taxed on an actual tax year basis. Individuals taxed under the PAYE system who have rental profits must make a tax return under the Self Assessment system. Your accountant can complete this tax return for you.

When must the tax return be made?
The return must be made by October 31st of the following year. For example a tax return for rent received in 2007 must be made by 31st October 2008.

What records must be kept for tax purposes?
You must keep full and accurate records of your lettings from the start. You need to do this whether you send in a simple summary of your profit/ loss, prepare the accounts yourself or have an accountant do it for you. All supporting records such as invoices, bank statements, cheque stubs, receipts etc should be retained. You must keep your records for six years unless your revenue office advises you otherwise.
Source: revenue

How are non resident landlords taxed?
On receipt of the annual tax return, profit from rent i.e. rent received less allowable expenses will be assessed. The landlord is entitled to claim relief for expense, which are usually allowed in arriving at the rental profit. The landlord is also entitled to a credit for the tax deducted by the tenant. Form R185 should be submitted by the landlord with the tax return to obtain credit for the tax retained.

TIP An investor buying a new build investment property will pay stamp duty on the purchaser price net of VAT not the VAT inclusive price. Many investors pay the stamp duty on the total price, wasting hundreds and possibly thousands of euro.

greendom

rightoldpickle wrote: »

I'm not sure what figures I should be looking at. I thought that the tax was only payable on the profit (which in my case there is none as the rent wont cover anywhere near the mortgage)

Rent hopefully will be 900, we are both in the lower tax bracket.

I have no idea where to begin in trying to figure it all out so any advice is much appreciated.

thanks

You will only be entitled to claim for 75% of your mortgage as an expense against your rental income. But yu can claim for all other non-capital expenses such as buildings insurance, repairs etc.

3DataModem

greendom wrote: »

You will only be entitled to claim for 75% of your mortgage as an expense against your rental income. But yu can claim for all other non-capital expenses such as buildings insurance, repairs etc.

Not 75pc of mortgage, 75pc of interest.

Gloomtastic!

3DataModem wrote: »

Not 75pc of mortgage, 75pc of interest.

Why not 100% of mortgage interest?

greendom

Gloomtastic! wrote: »

Why not 100% of mortgage interest?

I don't know - them's the rules - its 100% if you rent out a commercial property

doolox

....regardless of whether you make any money on the house or not.

In a fit of madness I bought a second house in 2005 and have lost 100,000 on it since then and have being paying through the nose on renting it since then....at least 2k a year on furniture, repairs, upkeep etc and have had mixed fortunes with tenants, some good some bad. A lot of tenants are being turfed out now as houses are being sold off at ANY price in order for the owners to escape high mortgages.

We may have to go the same way if houses keep dropping in price and rents keep going down as we owe 208k and the house will only get 190k.

The govt should give 100% interest on mortgages as the contracted to do when we bought the house but have welshed on that deal...I am unemployed so things are tight.

My advice to anyone.....do not buy houses for investment. Buy the smallest house you can get away with and rent bigger house for when children are with you going to school. Once they are gone move yourself and spouse into smaller house for the rest of your lives. Many older people are stuck in big houses they cannot afford to heat or maintain because of the non-existant property market. In times when rents are high you can always move into the small house until rents become low again. It is best to have a minimal house for yourself and spouse but I wouldn't go for a second house ass the govt see it as an easy target for tax.

Seek advice on investment from an expert but I'd make it mobile and transferable cross -borders so the tax men cant get their hands on it. Gold. silver etc might be better than land or houses now.......

The_Conductor

Note- you also have to tell the bank that you're renting out the property.
They may switch you to an investor mortgage (most mortgages on PPR (Principle Private Properties) are afforded a far more favourable rate by a bank or lending institution- than would a rental property). If you are no longer resident in your property- you could be in breach of the terms of your mortgage.

Further- you no longer qualify for TRS on the mortgage (but you do get 75% relief on the interest component).