Rental Income Tax Return

troops

Hi,

I've a few questions on this I can't find definitive answers to so any help appreciated.

1. I only started renting out the house in Oct. 2010 - when I file a return next month for 2010 rental income what do I deduct for home insurance, mortgage protection, interest etc paid in 2010....is it all worked out out on a calendar year basis or do I take 1/4 of each to represent the 3 months rental?

2. Deductions for fixtures & fittings (12.5% p.a.) - as I lived in the house before renting it out I have none or very little receipts for furniture etc....is it ok to deduct regardless once I know (roughly) what I paid for these items?
Also, can the likes of garden shed, lawnmower, decking etc. be included or just stuff inside house?

Thanks.

The_Conductor

1. Its on a pro-rata basis, so yes, its only for the last quarter.

2. The 12.5% deduction is from date of purchase- not from when you started to let out the house. So- even if they are in perfect condition- if they are 8 years of age- you can't use the flatline deduction on them. Also- you can be asked for proof of purchase by the Revenue Commissioners, if they decide to audit you- and if you can't prove when you purchased them, and at what price, they will be disallowed.

Garden shed, decking etc- would be considered to be part of the property- and you can deduct for their upkeep (upkeep- not a 12.5% deduction- irrespective of when you had them put in or purchased). The lawnmower- good question- I'd hazard a guess that its not allowable at all.

brinks_18476

Hi Guys,

I would appreciate your input on following rental income tax return scenario:

I decided to move house and "to start a lettings business" with my original house. I therefore placed the house into the "business" and the "business" had an asset worth 500k at the start of letting . I decided to (needed to) build another house to live in. To obtain funds to do this I withdrew 465k from lettings business. The only problem is that the "business" does not have the cash so it needs to raise that amount. The cheapest way to raise this money was to remortgage the original house. The original mortgage was 60k and it was remortgaged to 465k to facilitate building of new house. The remortgage was taken out in 2007. The rental of original property commenced in 2009 when new house was built.

So is the interest on a full 465K deductable from the rental income for tax purposes.?

antoinolachtnai

No is the simple answer I think, though I am no expert. The borrowings weren't for the business purposes, they were for the purpose of funding a drawing by the owner which was then used by the owner for private purposes. The tax allowance for interest only applies for funding the business. If you had used the money to buy another rental house, or to buy a van to go and service the property, it would be different.

As I understand it, you can do the opposite, i.e., borrow on the strength of your residential house, use the money for business purposes and set the interest off against tax. But that's a very different case.

You should talk to a tax adviser though.

The_Conductor

As Antoin has said- you really need professional advice on this.
The big issue that I can see is you could be taxed personally on the drawings you'd made from the 'business'- so wholly aside from whether or not the mortgage interest was tax deductable or not- as personal 'income', and I believe it would be viewed as such- you could end up with a nasty tax bill.

You really need professional advice on this........

brinks_18476

Anton and SMcarrick - thankyou for replies. Much appreciated.