Landlord makes loss Revenue thinks its profits

Finbarr Murphy

I was talking to a multiple property landlord this morning ( I don't know exactly which properties he owns but I do know that he holds a few) and he said that he makes a loss on his properties every year after deducting all expenses.

He also said that due to the inability of not being able to write off full mortgage interest relief revenue views that he is making a profit so he has to pay ttax while making a loss. Is this true?

It was a fairly hurried discussion but the above it what I understood hence I am asking here if this is correct. Seems pretty unbelievable to me but then nothing surprises me any more in this country or overseas.

Lumen

Mortgage interest is 80% deductible in 2017, moving to 100% by 2021.

Browney7

He has a negative cashflow but is making a trading profit. He is repaying money he borrowed. He may feel this to be a loss but is building up equity in the underlying asset. If he bought it on day one for cash there would be no "loss".

Finbarr Murphy

Lumen wrote: »

Mortgage interest is 80% deductible in 2017, moving to 100% by 2021.

AIUI that's only for those having rent allowance or HAP tenants. I don't know whether the landlords tenants full under these schemes or if they are working.

This actually leads me to another question.

The 100% mortgage interest relief is based on a 3 year plan. What happens if say for the first year the tenant is working and leaves after the first year, the second year a new tenant moves in who is on RA and moves out after 12 months and the 3rd year a new tenant moves in who is working.

Is only 80% relief available in this case? I had been trying to find an answer to this on the big G but to no avail.

Graham

Finbarr Murphy wrote: »

AIUI that's only for those having rent allowance or HAP tenants.

No, it's available regardless of the status of the tenant.

Finbarr Murphy

Browney7 wrote: »

He has a negative cashflow but is making a trading profit. He is repaying money he borrowed. He may feel this to be a loss but is building up equity in the underlying asset. If he bought it on day one for cash there would be no "loss".

Sorry it's taking a bit to get my walnut sized brain around this. Surely paying back capital and interest is enough of a repayment? The cost of business is the purchase of the property so surely that should allow 100% mortgage relief no matter which tenant one takes on.

Finbarr Murphy

Graham wrote: »

No, it's available regardless of the status of the tenant.

Ok that's the first I heard about that. Thanks. I'll have a dig around on Google in order to satisfy my curious mind.

Browney7

Finbarr Murphy wrote: »

Sorry it's taking a bit to get my walnut sized brain around this. Surely paying back capital and interest is enough of a repayment? The cost of business is the purchase of the property so surely that should allow 100% mortgage relief no matter which tenant one takes on.

Is there not a plan to increase the 80% to 100% over the next number of years for all tenants but in order to incentivise LLs to take HAP tenants it's 100% relief? Thought I read this somewhere anyways.

The repayment of capital isn't an allowable expense. It would disadvantage people who own the property outright over those that have borrowings.

Graham

Finbarr Murphy wrote: »

Surely paying back capital and interest is enough of a repayment?

Given the extremely limited supply of rental property it's probably safe to assume it's not enough when weighed against the considerable downsides.

Lumen

Browney7 wrote: »

Is there not a plan to increase the 80% to 100% over the next number of years for all tenants but in order to incentivise LLs to take HAP tenants it's 100% relief? Thought I read this somewhere anyways.

Possibly here (from Jan 2016):

http://www.irishtimes.com/news/social-affairs/landlords-to-get-tax-relief-for-social-tenants-1.2500252

"The new scheme will allow property owners who rent to tenants in receipt of rent supplement or the housing assistance payment (HAP) to claim 100 per cent relief on their mortgage interest, as an expense against rental income."

Finbarr Murphy

and here: http://www.irishtimes.com/business/economy/budget-2017-landlords-disappointed-despite-longed-for-tax-break-1.2825430

Gumbo

Don't forget you sign a declaration on day one to allow social tennents for 3 years.
Then you get 80% interest relief for year 1, year 2 and then in year 3 you can claim the 100% plus the 20% for the previous 2 years.