Credit card for rental property ?

Ipro

Was just thinking in relation to cash flow etc , Would I be better off putting rental property purchases ( carpets , cooker etc) on a credit card rather than paying up front.

Can i claim wear at the usuall 12.5% per year as well as 75% of the interest charged by the crediti card company.

Can my accountant write the card off as an expence every year including interest charged or does the 75% of interest rule only apply to mortgages ?

Im quite new into the renting game so if someone could explain the positives and benifis of the above.

My understanding is if the card rate is 20%APR and i can write 75% off then the advantage is better cash flow with the disadvantage being i have to pay 5% interest on purchases, but sure thats a low enough justifable APR surly ?

murphaph

Ipro wrote: »

Can i claim wear at the usuall 12.5% per year as well as 75% of the interest charged by the crediti card company.

Can my accountant write the card off as an expence every year including interest charged or does the 75% of interest rule only apply to mortgages ?

You can't deduct this type of interest at all. You may deduct mortgage interest (@75%) only I'm afraid. Nice try though :pac:

sunnysoutheast

murphaph wrote: »

You can't deduct this type of interest at all. You may deduct mortgage interest (@75%) only I'm afraid. Nice try though :pac:

Revenue states that "... interest on money borrowed to purchase, improve or repair let property is deductible in computing your rental income for tax purposes." in IT70 so I not believe this is restricted to mortgages. Could be a CU loan, etc.

Not sure I would add an unrecoverable 5% to every cost I incur, but I would hazard a guess that the arrangement proposed would be valid.

Ipro

Judging by what revenue are saying I would be of the opinion that I should be entitled to write of 75% of the interest . I suppose I just want to see if anyone has managed to do it before. Revenue are very much for saying one thing and then deciding they dont want to give you a deductable later on down the road.

Mixed answers so far so it should be interesting to see what peoples experiences are.

RE: Adding 5% cost on to something , sometimes this can have its advantages , for example using the card to intall a new kitchen , improve the value of the property prior to a bank valuation if using the house as leverage for a deposit/equity release etc. This way you could have a deposit saved in cash , not have to touch it , and also have your property that yuou own outright valued higher etc .Its good for gearing and using for leverage etc

Claw Hammer

sunnysoutheast wrote: »

Revenue states that "... interest on money borrowed to purchase, improve or repair let property is deductible in computing your rental income for tax purposes." in IT70 so I not believe this is restricted to mortgages. Could be a CU loan, etc.

Not sure I would add an unrecoverable 5% to every cost I incur, but I would hazard a guess that the arrangement proposed would be valid.

Money for fittings such as beds, carpets etc is not money borrowed to purchase, improve or repair let property. Those items are capitalised and written off over 8 years on a flat line basis. The cost of the building itself is never written off. This is a subject more suited to the taxation forum. What you should note is that the tax is paid by way of self assessment and if you get it wrong you will be hit with interest and penalties if you are audited.

athtrasna

Claw Hammer wrote: »

This is a subject more suited to the taxation forum. What you should note is that the tax is paid by way of self assessment and if you get it wrong you will be hit with interest and penalties if you are audited.

I'm inclined to agree.

barneystinson

Even if you could write off 75% of the CC interest, this simply reduces the PROFIT by this amount, this saves you tax at your marginal rate (maybe 52%).

To use an example:
You buy €1,000 of furniture on the card.
You pay €200 in interest.
You can deduct €150 of this, reducing your profit by €150, and your tax bill by €78.
So from a cash flow point of view you are still out of pocket by €122 (€200 - €78) or 12.2% for the cash flow saving.

Ipro

I appreciate you breaking this down for me but using your theory if the money were to be taken for a mortgage on an investment BTL rather than buying cash it would reduce the PROFIT by this amount and thus be out of pocket. I understand that borrowing the money is going to cost something , Its going to eat into profit but cashflow does come into it and someone who buys 3 BTL mortgaged properties is going to be better off than someone who bought one property for cash (assuming all goes well of course)

Majority of professional landlords have as much as possible on finance , to maximise growth and take advantage of the tax break.

So yes it will cost money to borrow the money but this cost can be set against oppertunity cost that would have incured if you had of tied the money up.

Borrowing money for business use seems to be quite viable , considering one usually makes a profit , get better leverage and can write a percentage off against tax as I see it.

barneystinson

Ipro wrote: »

I appreciate you breaking this down for me but using your theory if the money were to be taken for a mortgage on an investment BTL rather than buying cash it would reduce the PROFIT by this amount and thus be out of pocket. I understand that borrowing the money is going to cost something , Its going to eat into profit but cashflow does come into it and someone who buys 3 BTL mortgaged properties is going to be better off than someone who bought one property for cash (assuming all goes well of course)

Majority of professional landlords have as much as possible on finance , to maximise growth and take advantage of the tax break.

So yes it will cost money to borrow the money but this cost can be set against oppertunity cost that would have incured if you had of tied the money up.

Borrowing money for business use seems to be quite viable , considering one usually makes a profit , get better leverage and can write a percentage off against tax as I see it.

I just wanted to correct a clear misconception in your OP:
"My understanding is if the card rate is 20%APR and i can write 75% off then the advantage is better cash flow with the disadvantage being i have to pay 5% interest on purchases, but sure thats a low enough justifable APR surely?"

This understanding is not correct. You are still paying the 20% interest in that scenario. Tax deductibility, if available, would reduce this to a 12.2% after tax cost of borrowing, certainly not the 5% you appeared to be thinking it would be.

And just to be absolutely clear, this is all hypothetical, because I don't see how this type of interest would fall within the classes of deduction allowed by section 97 TCA 1997.

Ipro

barneystinson wrote: »

I just wanted to correct a clear misconception in your OP:
"My understanding is if the card rate is 20%APR and i can write 75% off then the advantage is better cash flow with the disadvantage being i have to pay 5% interest on purchases, but sure thats a low enough justifable APR surely?"

This understanding is not correct. You are still paying the 20% interest in that scenario. Tax deductibility, if available, would reduce this to a 12.2% after tax cost of borrowing, certainly not the 5% you appeared to be thinking it would be.

And just to be absolutely clear, this is all hypothetical, because I don't see how this type of interest would fall within the classes of deduction allowed by section 97 TCA 1997.

Thankyou for clarifying this.

If it was possible to write off would you feel it would be a good route or a bad route to go down ?