Tax on loss-making, forced rentals

FlexBrowne

There are many like myself who bought 'starter homes' aka shoeboxes in the bubble with the intention of upgrading as families started/grew. With a dead market and neg eq it's impossible to sell so the only alternative is to rent out and rent elsewhere. PRTB fees, set up, maintenance etc added to the diff between rent and mortgage makes for a massive loss every month and the property is down 70% on purchase price since late '04. After tax and from 2013 PRSI this renting at such a loss is unsustainable whilst paying rent elsewhere. Is it just that 'reluctant' landlords are treated the same for tax purposes as 'buy to let' investors. These are family homes that are being rented and the losses before tax are already huge. How can a loss be considered an income when the collateral has massive neg eq also?

murphaph

FlexBrowne wrote: »

There are many like myself who bought 'starter homes' aka shoeboxes in the bubble with the intention of upgrading as families started/grew. With a dead market and neg eq it's impossible to sell so the only alternative is to rent out and rent elsewhere. PRTB fees, set up, maintenance etc added to the diff between rent and mortgage makes for a massive loss every month and the property is down 70% on purchase price since late '04. After tax and from 2013 PRSI this renting at such a loss is unsustainable whilst paying rent elsewhere. Is it just that 'reluctant' landlords are treated the same for tax purposes as 'buy to let' investors. These are family homes that are being rented and the losses before tax are already huge. How can a loss be considered an income when the collateral has massive neg eq also?

You only make a loss if the rent can't cover your expenses. The mortgage capital part of your repayment is not an expense though, only the interest portion of the mortgage repayment.

It would be a legal minefield to try to distinguish between professional landlords and a person who through various reasons now finds himself renting out his former home (I rent mine out too btw).

It's a tough lesson to learn for many people and I do sympathise.

Valetta

Just to add that only 75% of the mortgage interest is allowable against tax.

Victor

While your out-goings may be more than the rent you receive, this me be as much a cash-flow issue as a profit/loss issue.

At the end of the mortgage, you will have a valuable asset (perhaps not as much as you'd like, but still valuable).

D3PO

FlexBrowne wrote: »

There are many like myself who bought 'starter homes' aka shoeboxes in the bubble with the intention of upgrading as families started/grew. With a dead market and neg eq it's impossible to sell so the only alternative is to rent out and rent elsewhere. PRTB fees, set up, maintenance etc added to the diff between rent and mortgage makes for a massive loss every month and the property is down 70% on purchase price since late '04. After tax and from 2013 PRSI this renting at such a loss is unsustainable whilst paying rent elsewhere. Is it just that 'reluctant' landlords are treated the same for tax purposes as 'buy to let' investors. These are family homes that are being rented and the losses before tax are already huge. How can a loss be considered an income when the collateral has massive neg eq also?

why cant I deduct my mortgage from my gross income before I pay tax. Its not fair its not like its disposable income I have to spend.

:rolleyes::rolleyes:

FlexBrowne

Victor wrote: »

While your out-goings may be more than the rent you receive, this me be as much a cash-flow issue as a profit/loss issue.

At the end of the mortgage, you will have a valuable asset (perhaps not as much as you'd like, but still valuable).

Technically yes but bought for €150k and value now under €50! Maybe in 6/7 years it'll be worth what I owe on it. Break even and sell although lose 14 yrs of Mortgage Payments with nowt to show plus those loss making rental years...
Thanks for the reply.

StillWaters

Personally I do think something should be done for reluctuant Landlords like yourself.
I'd like to see a scheme where anyone who has ONE property, which was a PPR, but has rented it out and is renting themselves either for work or family reasons can have rent they are paying offset against tax liability on their former PPR.

TBH though I can't see it happening.

Victor

Potentially that just 'rewards' past speculation and sets us up for another unsustainable boom in the future.

D3PO

the road to hell is paved with good intentions. Its unfortunate but lifes just not fair.

You make a decision you live by it. For everybody that does well out of a deal somebody else does badly thats just how it is.

StillWaters

Victor wrote: »

Potentially that just 'rewards' past speculation and sets us up for another unsustainable boom in the future.

I have heard that argument against it, hence why I don't think it will happen.

I do think though that mobility is severely restricted by people being trapped in NE, and policy measures should to be taken in order to enhance economic and social mobility.

What is likely to happen IMO, is there will be a Market response/solution when liquidity returns, and more switcher mortgages will be available.

FlexBrowne

Victor wrote: »

Potentially that just 'rewards' past speculation and sets us up for another unsustainable boom in the future.

What 'speculation'? Just bought a house to live in not as an investment.

FlexBrowne

D3PO wrote: »

FlexBrowne wrote: »

There are many like myself who bought 'starter homes' aka shoeboxes in the bubble with the intention of upgrading as families started/grew. With a dead market and neg eq it's impossible to sell so the only alternative is to rent out and rent elsewhere. PRTB fees, set up, maintenance etc added to the diff between rent and mortgage makes for a massive loss every month and the property is down 70% on purchase price since late '04. After tax and from 2013 PRSI this renting at such a loss is unsustainable whilst paying rent elsewhere. Is it just that 'reluctant' landlords are treated the same for tax purposes as 'buy to let' investors. These are family homes that are being rented and the losses before tax are already huge. How can a loss be considered an income when the collateral has massive neg eq also?

why cant I deduct my mortgage from my gross income before I pay tax. Its not fair its not like its disposable income I have to spend.

:rolleyes::rolleyes:

Spectacularly missing the point. With every mortgage payment you move closer to ownership. And you're happy to live there and it suits your needs and neg eq is irrelevant because you're not moving! The state owns my freehold and a 1/4 share and I pay them rent on their share. When paid I STILL have to find their share locked at boom time levels. Losing on that whilst trying to pay rent on where I do live is impossible. No solution. Not looking for a cent off just not to be treated like someone who gambled on property. I hate that notion. You're ok. Good for you.

FlexBrowne

Victor wrote: »

While your out-goings may be more than the rent you receive, this me be as much a cash-flow issue as a profit/loss issue.

At the end of the mortgage, you will have a valuable asset (perhaps not as much as you'd like, but still valuable).

That's not certain. By the time it's paid the house could still be only worth the Councils share that needs buying out. They are beyond useless in finding a solution...

StillWaters

FlexBrowne wrote: »

Spectacularly missing the point. With every mortgage payment you move closer to ownership. And you're happy to live there and it suits your needs and neg eq is irrelevant because you're not moving! The state owns my freehold and a 1/4 share and I pay them rent on their share. When paid I STILL have to find their share locked at boom time levels. Losing on that whilst trying to pay rent on where I do live is impossible. No solution. Not looking for a cent off just not to be treated like someone who gambled on property. I hate that notion. You're ok. Good for you.

But with every mortgage payment you move closer to ownership too. It was speculation in a way, you bought a property that was not going to fulfil your medium term needs in the chance/hope that prices would continue to rise, you could sell for a profit, and buy a bigger/family home.

What do you want to happen? You say you are not looking for a cent off, so what would you like to see implemented?

I think the biggest problem for you and others in your situation, and correct me if I'm wrong, I'm not too au fait with shared ownership, is that you cannot rent out your apartment?
That does seem very unfair to me.

Victor

FlexBrowne wrote: »

What 'speculation'? Just bought a house to live in not as an investment.

You bought into a booming market. But, yes, speculation may be over-stating your case.

The_Conductor

As alluded to above- unfortunately whether you are making a profit or a loss on the rental of your property- does not have any bearing on whether or not you have a tax liability.

Your entire rental income is income reckonable for tax. You are allowed certain deductions before determination of taxable income. Not all your expenses associated with renting out the property are allowable expenses (aka mortgage interest @ 75% is allowable currently (though we have agreed to phase this out by 2017)), other costs such as property taxes or household charges, are *not* allowable expenses at all etc.

At the moment- for most landlords- the allowance of 75% of the mortgage interest as an expense- is the biggest allowable expense out there.

You really need to evaluate your position carefully before making an informed decision as to whether the math adds up in your specific case.....

gar32

Sure back to the bad old days when families lived in one room. I lived in a 2 bed flat with 3 sisters and a brother. Yes it was not the best for us but it was the best we could have at the time.

Yes times are hard but you need hard measures to make things better for yourself.

Good luck and I hope you can sort it out for the better soon.

The_Conductor

Just to clarify- I'd personally wholeheartedly support any measure to allow people rent out their PPR and use the rental income to offset the cost of renting another property for their personal habitation, elsewhere (in the Irish tax jurisdiction obviously- we can't all bugger off to Spain- not that their economic situation is any better than ours......)

D3PO

FlexBrowne wrote: »

Spectacularly missing the point. With every mortgage payment you move closer to ownership. And you're happy to live there and it suits your needs and neg eq is irrelevant because you're not moving! The state owns my freehold and a 1/4 share and I pay them rent on their share. When paid I STILL have to find their share locked at boom time levels. Losing on that whilst trying to pay rent on where I do live is impossible. No solution. Not looking for a cent off just not to be treated like someone who gambled on property. I hate that notion. You're ok. Good for you.

Actually hitting the point bang on the head. With every mortgage payment on your rental you move closer to ownership aswell.....

but you did gamble on property,. you gambled that priced would move up and you could move from this home to a larger one doen the line. thats a gamble.

personal responsibility my friend.

jackal

FlexBrowne wrote: »

What 'speculation'? Just bought a house to live in not as an investment.

So live in it then, or else stop pretending you are not now a landlord, accidental or not.

So sick of these "pay my debts" woe-is-me stories.

FlexBrowne

You're not supposed to rent out but I did. No choice really. Was hoping the council would temp take the house and use for social housing and when (if) prices rise I'd sell and pay them off. I'd continue to rent privately and with a 1300 waiting list surely they require properties.
I hope to look back on all this in the future with a smile. I hope!

FlexBrowne

smccarrick wrote: »

As alluded to above- unfortunately whether you are making a profit or a loss on the rental of your property- does not have any bearing on whether or not you have a tax liability.

Your entire rental income is income reckonable for tax. You are allowed certain deductions before determination of taxable income. Not all your expenses associated with renting out the property are allowable expenses (aka mortgage interest @ 75% is allowable currently (though we have agreed to phase this out by 2017)), other costs such as property taxes or household charges, are *not* allowable expenses at all etc.

At the moment- for most landlords- the allowance of 75% of the mortgage interest as an expense- is the biggest allowable expense out there.

You really need to evaluate your position carefully before making an informed decision as to whether the math adds up in your specific case.....

Oh they don't but I've no choice but when the money runs out its the mortgage on the house and not the rent on where I'm raising my children will get cut first.

FlexBrowne

jackal wrote: »

FlexBrowne wrote: »

What 'speculation'? Just bought a house to live in not as an investment.

So live in it then, or else stop pretending you are not now a landlord, accidental or not.

So sick of these "pay my debts" woe-is-me stories.

Quote where I asked anyone for a penny?
You have no idea if you're not in the situation. No idea. I'd like to be able to bath my kids, have a table to sit at etc. How greedy of me....

Ray Palmer

FlexBrowne wrote: »

Quote where I asked anyone for a penny?
You have no idea if you're not in the situation. No idea. I'd like to be able to bath my kids, have a table to sit at etc. How greedy of me....

asking not to pay tax due is asking for money.
You may not have been greedy but expecting to pay your rent and get tax free income is asking a lot. You seem to be unaware of what you are asking.
Effectively you want tax payer to part fund your choice of property. You made that purchase on the belief you would make a profit. Your solicitor would have warned you of the risk as they all do before you sign.
I am completely fine you have to pay tax on rental income. It would be so easy to abuse otherwise.
You know a lot of people bought houses so they had room for kids if need be.
You have to live with your choices and there is no easy way out.

jackal

FlexBrowne wrote: »

Quote where I asked anyone for a penny?
You have no idea if you're not in the situation. No idea. I'd like to be able to bath my kids, have a table to sit at etc. How greedy of me....

You are asking for a special tax exemption on rental income received against what is now, like it or not, an investment property. Your bad investments in property are not any different from someone else with a business which is losing money. Should they not pay VAT etc when they are making a net loss?

Your emotive rubbish about bathing your kids, having a table to sit at is hilarious. Did your original house have no bath or kitchen table? Could you not have extended, or did you just think, like everyone else, the only way is up and the more properties you own the merrier?

murphaph

FlexBrowne wrote: »

Oh they don't but I've no choice but when the money runs out its the mortgage on the house and not the rent on where I'm raising my children will get cut first.

What I don't understand is why you had kid(s?) when you only had a 1 bed flat to raise them in?

CiaranC

FlexBrowne wrote: »

What 'speculation'? Just bought a house to live in not as an investment.

Buying an apartment with a view to living in it for a couple of years, selling it and using the profit to fund a mortgage for a bigger house is speculation.

FlexBrowne

murphaph wrote: »

FlexBrowne wrote: »

Oh they don't but I've no choice but when the money runs out its the mortgage on the house and not the rent on where I'm raising my children will get cut first.

What I don't understand is why you had kid(s?) when you only had a 1 bed flat to raise them in?

Because bricks/mortar and money won't stop me living my life. I'm not that stupid nor should anyone else. Enjoy your moral high ground. It must be dizzying up there.

murphaph

FlexBrowne wrote: »

Because bricks/mortar and money won't stop me living my life. I'm not that stupid nor should anyone else. Enjoy your moral high ground. It must be dizzying up there.

We wanted a kid for a long time too, but we waited until we were financially in a secure enough position to make sure we could do it and that the child would have their own room etc. You chose not to wait, so you and your family have to accept the downsides of that decision.

You say that people who allow their financial status to determine their lifestyle are in some way stupid, but you are the one on here in neg equity with a property they can't even sell and aren't supposed to rent out.

matrim

FlexBrowne wrote: »

There are many like myself who bought 'starter homes' aka shoeboxes in the bubble with the intention of upgrading as families started/grew. With a dead market and neg eq it's impossible to sell so the only alternative is to rent out and rent elsewhere. PRTB fees, set up, maintenance etc added to the diff between rent and mortgage makes for a massive loss every month and the property is down 70% on purchase price since late '04. After tax and from 2013 PRSI this renting at such a loss is unsustainable whilst paying rent elsewhere. Is it just that 'reluctant' landlords are treated the same for tax purposes as 'buy to let' investors. These are family homes that are being rented and the losses before tax are already huge. How can a loss be considered an income when the collateral has massive neg eq also?

They are not "family homes" as you never intended to live there for a long period with a family. It was an investment property that you hoped you could sell for a profit when you needed to move to a bigger place.

FlexBrowne

I could sell it tomorrow, just waiting for the right offer. Plenty already. You assume all families are planned. You should start "perfect lives" classes seen as you seem to think so.
As much as it may give you great pleasure to see people in trouble, I'm sorry to disappoint you. I'm a beautiful home now and will rid myself of the burden sooner than later. who foresaw a 75% drop in value in a 2 bed house? I wish you well despite our clear differences and I'm done with this thread. Got some good advice in addition to the 'tough luck' begrudgery. Au Renoir tax thread!

FlexBrowne

It's what families have done since time immemorial. Not new. It's called upgrading. Stop trolling and offers advice or shut up. Back to your parents box room and your Xbox troll....

Bye bye

bjak

FlexBrowne wrote: »

I could sell it tomorrow,

Yet in the original post "With a dead market and neg eq it's impossible to sell "

Victor

FlexBrowne wrote: »

It's what families have done since time immemorial. Not new. It's called upgrading. Stop trolling and offers advice or shut up. Back to your parents box room and your Xbox troll....

Bye bye

If you have a problem with a post, report it. Abuse not welcome.

murphaph

FlexBrowne wrote: »

I could sell it tomorrow, just waiting for the right offer. Plenty already. You assume all families are planned. You should start "perfect lives" classes seen as you seem to think so.
As much as it may give you great pleasure to see people in trouble, I'm sorry to disappoint you. I'm a beautiful home now and will rid myself of the burden sooner than later. who foresaw a 75% drop in value in a 2 bed house? I wish you well despite our clear differences and I'm done with this thread. Got some good advice in addition to the 'tough luck' begrudgery. Au Renoir tax thread!

It gives me no pleasure whatsoever to see you or anybody else in financial difficulties. If fewer people had speculated that they'd be able to flip their own home in 2 or 3 years and "trade up" then our whole country would undoubtedly be in much better shape. As for "I could sell tomorrow" well clearly you can't because the property is in neg equity and if you do manage to sell you'll be left with an unsecured personal loan to pay off to cover the difference.

I didn't see a 75% drop in houses (I'd argue that only houses in the most idiotic of locations have actually seen such drops btw) but I certainly saw some drop of some significance. It's why not a penny of our SSIAs went anywhere near Irish property, but bought our current home in Germany, outright.

I knew that the house I own (well, part own with the bank) would suffer a loss but I had no intention of selling and firmly believe that the idiocy of the Irish wrt property will ensure it returns to its 2006 "value" at some stage before I pass it on. So long as I can rent it out (and it's in a good location with hight rental demand) then all's well and the book value of the property is of less importance to me.

Pointing out that someone's situation has a lot to do with their own decisions in life is not begrudgery. What would I begrudge you? Your neg equity? It doesn't make any sense!

I hope things pick up for you, but there's no easy solution to the mistakes you have made, nor should there be if Ireland is to avoid the same fate again.

3DataModem

FlexBrowne wrote: »

Victor wrote: »

Potentially that just 'rewards' past speculation and sets us up for another unsustainable boom in the future.

What 'speculation'? Just bought a house to live in not as an investment.

No, you say you purchased a starter home. If you intended it as a 'step on the ladder' of to sell within 7-10 years... it was at least in part an investment.