Mortgage Interest Tax Relief.

MarkAnthony

Hi Folks,

Absolutely going to engage the services of an account but for the basic maths I'm doing at the moment could anyone confirm/correct the following:

Mortgage interest: 75% can be written off against the income tax liability for the property. So For example:

200,000 Mortgage @ 4% = €8000 interest @ 75% = €6000
Rent 12,000 @ 41% = €4920

Therefore no income tax liable

However can the remainder of the €6000 - 4920 = €1080 be used to defray USC or PRSI?

Thanks in advance! (Rough Figures not counting mortgage capital repayment)

PS (For extra credit ) the remainder can't be offset against PAYE income tax but could one off set it against a self employed income?

PPS - This isn't actually my Revenue law homework, as I know the lecturer is on boards :eek:

Jasper79

What is your 12000 @ 41% ?

Your rental income is 12,000.

Less your mortgage interest @75% is 6,000.

Then taxable income is 6,000 ( minus any expenses)

Victor

MarkAnthony wrote: »

However can the remainder of the €6000 - 4920 = €1080 be used to defray USC or PRSI?

No. However, the rules are slightly complicated.

PS (For extra credit ) the remainder can't be offset against PAYE income tax but could one off set it against a self employed income?

I understand (a) wages/salaries, (b) rents, (c) trade profits and (d) professional incomes are each assessed separately and losses in one can't be set against the other.

You need to study this in detail and getting professional advice would be advisable.

MarkAnthony

Jasper79 wrote: »

What is your 12000 @ 41% ?

Your rental income is 12,000.

Less your mortgage interest @75% is 6,000.

Then taxable income is 6,000 ( minus any expenses)

Ah I see! Thanks. 12,000 was the rental income which falls into the 41% bracket. I thought you calculated it against the tax you paid not the Gross amount.

Victor wrote: »

No. However, the rules are slightly complicated.

I understand (a) wages/salaries, (b) rents, (c) trade profits and (d) professional incomes are each assessed separately and losses in one can't be set against the other.

You need to study this in detail and getting professional advice would be advisable.

Studying in more detail for the exam in January, even then I wouldn't be trusting my ability to do this so I'll definitely be speaking to an accountant.

Thanks to the pair of you!

MarkAnthony

Sorry so to clarify then.

PAYE Income 1 48,000 (for example)
PAYE Income 2 30,000

meaning that income over this all falls into the 41% bracket (+11%, 4% PRSI, 7% USC there or there abouts)

Rental income of 12000
- Mortgage interest 6000 (200,000 mortgage at 4% = €8000, 75% = €6000)
=€6000 to be taxed at 52%

=€3120 Tax liability

=Net 12000 - 3120 = €8880

Victor

That sounds about right.

Note:
* Only the mortgage interest is allowed, not the entire mortgage payment.
* There will be other expenses.
* You need to determine how USC and PRSI apply to rents.

murphaph

PRSI applies to all landlords now. The exemption for PAYE employees was removed and they pay PRSI on their rental income like everyone else (except non-resident landlords as being non-resident exempts one from PRSI generally)

Victor's "other expenses" point cannot be understated because as well as the obvious costs like maintenance and insurance, you can also use your capital allowances as the furniture etc. depreciates over 8 years. You are allowed to assign a reasonable value to furniture you may not have a receipt for anymore (common when an owner-occupied home becomes a rental)

You are right to get professional help (from someone who is recommended to you...there are rubbish accountants out there as well!!) at least for your first return. To be honest after that it's pretty straightforward in Ireland as so little is tax deductible.

MarkAnthony

Victor wrote: »

That sounds about right.

Note:
* Only the mortgage interest is allowed, not the entire mortgage payment.
* There will be other expenses.
* You need to determine how USC and PRSI apply to rents.

murphaph wrote: »

PRSI applies to all landlords now. The exemption for PAYE employees was removed and they pay PRSI on their rental income like everyone else (except non-resident landlords as being non-resident exempts one from PRSI generally)

Victor's "other expenses" point cannot be understated because as well as the obvious costs like maintenance and insurance, you can also use your capital allowances as the furniture etc. depreciates over 8 years. You are allowed to assign a reasonable value to furniture you may not have a receipt for anymore (common when an owner-occupied home becomes a rental)

You are right to get professional help (from someone who is recommended to you...there are rubbish accountants out there as well!!) at least for your first return. To be honest after that it's pretty straightforward in Ireland as so little is tax deductible.

Thank you both!

We're getting a bit excited now mortgage approval is in and we've found a house we really like. Hopefully it all doesn't go pear shaped now - been looking for a year

Gman1987

Is the mortgage interest relief not gone from new mortgages taken out?

The_Morrigan

Ger1987 wrote: »

Is the mortgage interest relief not gone from new mortgages taken out?

The OP is not asking about mortgage interest relief on a personal tax level, they are referring to the tax deductions available to professional landlords in relation to mortgage interest on the properties they rent out.