Becoming a landlord

matt-dublin

Hi All

I'm thinking about moving out of my apartment and letting it out

I'm trying to figure out if there's any financial benefit to doing so or will it just cost me more???

The big questions I have are around what costs I should expect eg PTRB registration etc.

Also other things such as taxable rent income and what I can deduct?

From what I've read I can deduct my management fees and mortgage interest from my pre tax rent income.

I think (could be wrong) that my interest on my mortgage annually at the moment is somewhere around the 10k mark and my management fees are 1600.

Does this mean I can claim 75% of the interest and the full amount of management fees? Say totalling €9100

Assuming I can rent the apartment for €1000 a month that gives me a gross income of €12000

Do I then deduct the €9100 from the €12000 leaving me with €2900 taxable @ whichever tax band I'm on?

And another question, if I decide to rent somewhere else, can I claim rent relief?

Cheers in advance

L1011

Rent relief is no longer available for new tenancies.

D3PO

you have the basic premise right Matt yes.

Don't forget you will have PRSI due aswell, long term don't forget this will impact you from a CGT perspective when you eventually dispose of the apartment.

The obvious one aswell is that nobody should consider 12 months occupancy when renting or doing their rental maths. It is generally accepted that you should do your calculations on 11 months occupancy.

You wont be entitled to MIR if you rent out the property either which you need to factor in.

If you feel that you can cover the rent of a new property, plus the difference in your mortgage versus what you get in rent, plus your end of year tax bill and it stacks up for you then go for it.

Quite often however it just doesn't stack up.

Mr. Incognito

MYOB wrote: »

Rent relief is no longer available for new tenancies.

This only applies to tenants. Not landlords. Check out stickies in taxation forum for info or my sig

The_Conductor

Mr. Incognito wrote: »

This only applies to tenants. Not landlords. Check out stickies in taxation forum for info or my sig

The OP is saying- if he rents somewhere else, is he entitled to rent-relief on the rent he'll be paying (aka a totally separate transaction to that of renting his own property). The answer is- no.

Pawwed Rig

You are also entitled to a capital allowances deduction at 1/8th the cost of all the furniture in your apartment over 8 years.
Other allowable deductions include advertising costs, PRTB registration fees (€90), insurance, maintenance costs. This should reduce the taxable amount to zero in your case:)

Someone else said in this forum that the property tax is now also deductible but I am not too sure on this one.

The_Conductor

Pawwed Rig wrote: »

You are also entitled to a capital allowances deduction at 1/8th the cost of all the furniture in your apartment over 8 years.
Other allowable deductions include advertising costs, PRTB registration fees (€90), insurance, maintenance costs. This should reduce the taxable amount to zero in your case:)

Someone else said in this forum that the property tax is now also deductible but I am not too sure on this one.

Property tax - no, not deductible (though the proposals are still to make it deductible. If anyone has any further information on this- please enlighten us)

One cost that you haven't mentioned- that is deductible- the cost of replacing the central heating in a unit- its depreciated over 8 years on a straight line basis too (aka @ 12.5% per annum). Depending on the system you have- this could be worth over a grand a year.

matt-dublin

thanks for the tips everyone.

So potentially, if I can get my taxable income to be neutral or negative it should be quite beneficial.

I'm thinking I should be at least be able to break even on rent, less the difference on the mortgage.

I should then be able to save on shorter commute and smaller property (heating/leccy bills etc)

I'm getting a rental valuation this week, I'm also stuck on quite a high variable mortgage (getting nailed for over €1800 a month!) which means my claimable interest is quite high.

The_Conductor

matt-dublin wrote: »

thanks for the tips everyone.

So potentially, if I can get my taxable income to be neutral or negative it should be quite beneficial.

I'm thinking I should be at least be able to break even on rent, less the difference on the mortgage.

I should then be able to save on shorter commute and smaller property (heating/leccy bills etc)

I'm getting a rental valuation this week, I'm also stuck on quite a high variable mortgage (getting nailed for over €1800 a month!) which means my claimable interest is quite high.

1800 a month- aka 1350 in allowable deductions.........
Depending on what you're managing to get in rent- that alone could clear any tax due on the rental income..........

Proposals are to do away with mortgage interest as an allowable expense (the reduction to 75% was supposed to be the first stage in this)- so keep clued in as to whats happening.

Santa Cruz

Hi

Have a check of Irishlandlord.com. A lot of info for you there! You can download sample leases
A few comments,
Property tax for 2013 is not allowable but I understand that Minister of Finance has accepted that it is a legitimate business cost and there will be a change in the Budget.
I really would advise that you use an accountant for submitting tax returns as you are new to the game.
Keep a record of every cost incurred before and during the tenancy as a lot can be allowed against income tax and capital gains which will reduce your tax bill.
You will need to register the tenancy with the PRTB, giving the tenants PPS number, rent paid, length of tenancy. Be sure to check out tenants. A quick call to the place of employment will confirm whether they are working there or not.
Remember they are not your friends. This is a business.
Inform your insurance company that the property is now let out. Contents insurance will only cover your property not the tenants.
Accountants fees, PRTB, management fees paid to the management company are all tax allowable. I am not sure of the interest relief provisions. Keep good records and get your accountant.
My accountant claimed 660 as a cost for transport, phones to cover expenses in management of the tenancy. If the property is geographically close you should manage it yourself as letting agents know how to charge and often give a bad service!

hfallada

The_Conductor wrote: »

Property tax - no, not deductible (though the proposals are still to make it deductible. If anyone has any further information on this- please enlighten us)

One cost that you haven't mentioned- that is deductible- the cost of replacing the central heating in a unit- its depreciated over 8 years on a straight line basis too (aka @ 12.5% per annum). Depending on the system you have- this could be worth over a grand a year.

I heard from a decent accountant that there was some law introduced in 1990s( when rates for houses were still around). That all property taxes paid to a local authority were tax deductible. That law was never changed and therefore your LPT should be tax deductible. The accountant said if Revenue challenge you about deducting it, appeal it and at a hearing they will probably rule in your favour( they have ruled in favour of the tax payer with similar issues).

Its a bit of a grey area. Revenue havent really said it isnt tax deductible or that is tax deductible. Most accountants I know arent happy about making it tax deductible.

odds_on

Don't forget repairs, replacement, redecorating and general maintenance - tax deductible if you get someone else to do the work. However, you need to be making a profit to cover all this.

Then there is normal wear and tear to be covered.

Not to mention the hassle of being a landlord - it is seldom the easy money that many tenants seem to think it is!!

The_Conductor

hfallada wrote: »

I heard from a decent accountant that there was some law introduced in 1990s( when rates for houses were still around). That all property taxes paid to a local authority were tax deductible. That law was never changed and therefore your LPT should be tax deductible. The accountant said if Revenue challenge you about deducting it, appeal it and at a hearing they will probably rule in your favour( they have ruled in favour of the tax payer with similar issues).

Its a bit of a grey area. Revenue havent really said it isnt tax deductible or that is tax deductible. Most accountants I know arent happy about making it tax deductible.

Rates are tax deductible- yes. Unfortunately- the Local Property Tax (despite its name) does not come under this heading (nor, despite its name, is it local in nature). Its a tax- that goes into a central kitty, and gets doled out as the government sees fit. So- my property tax- paid in Lucan, could very well be paying to infill potholes in rural Connemara.

Revenue stated that an amendment could be brought in in the Finance Bill, to allow the LPT be deductible for landlords. To the best of my knowledge- this was never brought in- though it has been stated that it is intended to be introduced this time around (aka Budget 2014).

whatnext

The_Conductor wrote: »

1800 a month- aka 1350 in allowable deductions.........
Depending on what you're managing to get in rent- that alone could clear any tax due on the rental income..........

Proposals are to do away with mortgage interest as an allowable expense (the reduction to 75% was supposed to be the first stage in this)- so keep clued in as to whats happening.

1800 mortgage is not equal to 1350 allowable deduction if it is a capital repayment mortgage. Only 75% of the interest part of the 1800 is an expense. Depending on the interest rate and the term of the loan the the interest is likely yo be in the region of 1000 leaving a deductible expense of 750 for the interest.

The_Conductor

whatnext wrote: »

1800 mortgage is not equal to 1350 allowable deduction if it is a capital repayment mortgage. Only 75% of the interest part of the 1800 is an expense. Depending on the interest rate and the term of the loan the the interest is likely yo be in the region of 1000 leaving a deductible expense of 750 for the interest.

The OP can clarify this (if he wants)- but 800 of a 1,800 mortgage being principle repayment is a very high amount. It depends on lots of factors. If the OP so chooses he can clarify this (but of course this is his business).

I take what you're saying- I hadn't factored the fact that its a repayment mortgage into the equation- I was looking at it as interest only- I just think your principle portion of the monthly payment is a little improbably high.

whatnext

The_Conductor wrote: »

The OP can clarify this (if he wants)- but 800 of a 1,800 mortgage being principle repayment is a very high amount. It depends on lots of factors. If the OP so chooses he can clarify this (but of course this is his business).

I take what you're saying- I hadn't factored the fact that its a repayment mortgage into the equation- I was looking at it as interest only- I just think your principle portion of the monthly payment is a little improbably high.

The figures were for illustrative purposes only. So many people I talk to (myself included when I started out) don't realise that the capital repayment portion of each repayment is profit and not an expense

matt-dublin

It's €1842 repayment on a variable ebs mortgage. About 27 years left on it so I would expect about 1100-1200 of that to be interest.

matt-dublin

Just had confirmation there, the total interest paid in the last calendar year was in excess of 15k, meaning that nearly 12k is deductible right?

The_Conductor

matt-dublin wrote: »

Just had confirmation there, the total interest paid in the last calendar year was in excess of 15k, meaning that nearly 12k is deductible right?

11,250 (if its 15k- aka 75% of whatever the interest charged is)

matt-dublin

The_Conductor wrote: »

11,250 (if its 15k- aka 75% of whatever the interest charged is)

Thanks, it looks like I'm in somewhat of a good position to lease out then.

What is the likelyhood of the government removing the interest deduction?

The_Conductor

matt-dublin wrote: »

What is the likelyhood of the government removing the interest deduction?

God only knows.
It used be fully deductible- and they lowered it to 75% as a first step towards abolishing it altogether- will they proceed- god only knows.

whatnext

@ Matt

There are 2 things you need to look at seriously before going down this road.

1 is the affordability and costs, which you are doing.
2 is cash flow. they are two entirely different things

Cash flow can be harder to manage than you think.

My advice is to sit down with a big piece of paper and see what the implications of certain things are.

Also separate bank account for the property is essential (in my opinion)

Budget on having the property let for 10.5 months a year.
Letting agents costs once a year if you intend using one.
Income tax bill every October.
Property Tax
PRTB
Replacement of furniture and appliances from time to time.
DO NOT USE TENANT DEPOSIT in any cash flow projection.
Mortgage repayments.
Insurance if you need it.
Management company fees/charges.
Painting / carpet etc every few years.
If you have electronic entry doors / gates, price up the fobs. I guarantee a tenant will lose / break them a some stage.
Get a phone number for a lock smith, electrician, plumber, heating engineer (depending on what you have) carpenter and general handyman. Find out what their call rate for each. And save their numbers you will need them.
Don't budget for doing everything yourself. My experience is that things only go wrong when you are overseas!!

Oh and an accountant if you need one.

MouseTail

The_Conductor wrote: »

God only knows.
It used be fully deductible- and they lowered it to 75% as a first step towards abolishing it altogether- will they proceed- god only knows.

It also used, for a while, be totally non deductible (after the Bacon Report). The Govt unfortunately rolled back on it.

I can see the 75% being reduced in the next budget.

Pawwed Rig

MouseTail wrote: »

I can see the 75% being reduced in the next budget.

I doubt it to be honest with you although nothing is certain.

I don't think it would actually raise that much revenue while at the same time it would be a massive whack on a sector that is struggling to keep their heads above water. The buy to let landlords are already some of the biggest defaulters on mortgages so a reduction in this relief would almost certainly cost the government more (via their 90% plus share in the banks) than leaving it as is.

The_Conductor

Its viewed as an unfair subsidy and a market distortion.
Yes- prices did fall when it was abolished after the Bacon Report- but they were overpriced to begin with- and arguably- even after the falls of the last 6 years, still are.

In addition- why should one group of people be allowed write-off the price of their capital against tax- but not another? We could go down the road of realising the asset value on all sorts of things- leasing them back- and writing the interest component off against tax- wonderful- no-one would own anything, the poor taxpayer would be subsidising the lot- and there would be no incentive to ever pay back loans (as you'd loose the cost to write off against your tax.

There is a proposal to tax income for all companies and businesses, presumably at a low level- rather than taxing profits. So- a 10% income tax- would do away with all of these allowances and allowable deductions- and you'd pay a straight 10% of all income directly to the exchequer, with no deductions. This would clear the decks of all the tax avoidance measures- such as this 75% deduction- and create a very easily understood structure that everyone could point at and it would be obvious that no shenanigans were happening. Obviously this would have to happen in line with international agreements and in context with the tax regimes of elsewhere- or else anyone with capital would just feck off elsewhere.

Pawwed Rig

In businesses interest is generally allowed as a deduction. This is one of the great advantages of the IFSC in Ireland, so to allow it for all business except landlords would imo be unfair as it is a legitimate expense of the letting business.

The_Conductor wrote: »

We could go down the road of realising the asset value on all sorts of things- leasing them back- and writing the interest component off against tax- wonderful- no-one would own anything, the poor taxpayer would be subsidising the lot- and there would be no incentive to ever pay back loans (as you'd lose the cost to write off against your tax.

Sounds very like what happens in the aircraft leasing sector.

The_Conductor wrote: »

There is a proposal to tax income for all companies and businesses, presumably at a low level- rather than taxing profits. So- a 10% income tax- would do away with all of these allowances and allowable deductions- and you'd pay a straight 10% of all income directly to the exchequer, with no deductions.

I haven't heard of this proposal but if it is anything like the Financial Services tax then it will meet tough resistance. This one has already been deemed illegal
http://www.rte.ie/news/business/2013/0910/473346-eu-transaction-tax/

sunnysoutheast

The_Conductor wrote: »

Property tax - no, not deductible (though the proposals are still to make it deductible. If anyone has any further information on this- please enlighten us)

One cost that you haven't mentioned- that is deductible- the cost of replacing the central heating in a unit- its depreciated over 8 years on a straight line basis too (aka @ 12.5% per annum). Depending on the system you have- this could be worth over a grand a year.

I believe capital allowances are also allowable against showers, appliances, etc.

Anything in-situ will need to be "valued" at the start of the rental period and then depreciated from then over 8 years.

Improvements are treated as capital expenditure which is not allowable against tax, but is allowable against CGT in due course.

Like-for-like repairs/replacements are claimable in full in one tax year.

matt-dublin

Hi All,

could or more quickies.

has NNPR now gone with LTP coming in and hoe much is the PRTB registration annually?

Pawwed Rig

matt-dublin wrote: »

has NNPR now gone with LTP coming in and hoe much is the PRTB registration annually?

NPPR needs to be paid this year but is gone then.
PRTB is a €90 fee at the start of each tenancy or every 4 years if a long term tenant.

The_Conductor

matt-dublin wrote: »

Hi All,

could or more quickies.

has NNPR now gone with LTP coming in and hoe much is the PRTB registration annually?

Yes- its gone- however for 2012, you had both (NPPR and LPT).
PRTB registration fee- €90 per tenancy (provided its registered within 1 month of the start of the tenancy- if you go over the month its 180).
If you own multiple units in the one building- you can pay a global fee of 375 for the whole lot (providing its not late).

matt-dublin

Cool thanks,

Does this mean that the LPT is deductible or not?

im just going through all my figures, its getting a wee bit tight now on breaking even.

matt-dublin

also what sort of rates will a letting agent charge?

murphaph

Pawwed Rig wrote: »

In businesses interest is generally allowed as a deduction. This is one of the great advantages of the IFSC in Ireland, so to allow it for all business except landlords would imo be unfair as it is a legitimate expense of the letting business.

It's already unfair that it's only 75%. It's a legitimate business expense and should be allowed at 100% as it is in the UK, Germany etc.

D3PO

murphaph wrote: »

It's already unfair that it's only 75%. It's a legitimate business expense and should be allowed at 100% as it is in the UK, Germany etc.

Changing it to 100% would only serve to

a) push up property prices as post tax yields would rise.

and

b) reduce tax take.

Neither of which the government would want to see happen.