Tax on apartment with no mortgage

poteen

Example: If I have an apartment in Dublin which I purchased for say €200K with cash and now have tenants in for €1000 per month. Is my rental income taxed from the €1000.

Why I ask this is, what if I have a mortgage on the apartment of say €600 per month. Is my rental income taxed on the €400 'Profit' left after repaying the mortgage or on the €1000 rent.

Is the cash purchaser taxed more on their rent income than the mortgage holder?

I know that certain things can be claimed against the tax like maintenance etc but I just want to see the cash buyer owner -v- mortgage owner differences if any.

Samuel T. Cogley

If you have an income of €1000 you would be taxed at your income tax rate. Let's assume that's 50% just to makes the math easy. So you'd pay €500 per month tax. If there is a mortgage of €500 per month, €250 of that being interest, 80% of that would be deductible against tax. So you'd pay 50% tax on €1000-(80% of €250) = €800 - which would be €400 in tax.

In the first instance you'd have €500 net profit and in the latter €100 net profit, so bear in mind having the property financed doesn't mean more profit (month to month, year to year) it just more tax efficient which is useful in the longer term.

I've literally just rolled out of bed so calculating tax like that might be wrong bu the principle is the same.

poteen

Samuel T. Cogley wrote: »

If you have an income of €1000 you would be taxed at your income tax rate. Let's assume that's 50% just to makes the math easy. So you'd pay €500 per month tax. If there is a mortgage of €500 per month, €250 of that being interest, 80% of that would be deductible against tax. So you'd pay 50% tax on €1000-(80% of €250) = €800 - which would be €400 in tax.

In the first instance you'd have €500 net profit and in the latter €100 net profit, so bear in mind having the property financed doesn't mean more profit (month to month, year to year) it just more tax efficient which is useful in the longer term.

I've literally just rolled out of bed so calculating tax like that might be wrong bu the principle is the same.

Thanks for the answer. That clears things up. The cash purchaser is not treated any differently really so.

Gumbo

poteen wrote: »

Thanks for the answer. That clears things up. The cash purchaser is not treated any differently really so.

Nope. You could pay more tax in theory as you have no allowable interest to off set.

poteen

kceire wrote: »

poteen wrote: »

Thanks for the answer. That clears things up. The cash purchaser is not treated any differently really so.

Nope. You could pay more tax in theory as you have no allowable interest to off set.

But you can consider the balance of the interest as a 'tax' of sorts in terms of profit.
In the long term you would still make more as a cash owner as you don't have the mortgage cost.

Turkish1

poteen wrote: »

But you can consider the balance of the interest as a 'tax' of sorts in terms of profit.
In the long term you would still make more as a cash owner as you don't have the mortgage cost.

Not necessarily true. If you have a choice of cash only or mortgage then you clearly have a large sum of money in the bank/easily available. If you opt for the mortgage you will still have a large amount of capital which you would ideally make money on.

Haven't overly run through figures in any great detail but on the face if it, in most cases going the mortgage route will give the best chance of maximising your return. That however assumes that you make positive returns on your remaining capital and as we all know investments may go down as well as up.