Tax Treatment and Allowable Expenses for Landlords

murphaph

_Dara_ wrote: »

Landlords are also able to deduct anything that is an expense in accounting terms, like any business.

No they can't. Pre-letting expenses are not deductible for a start!

murphaph

I suspect if there is a clampdown in the city centres that more use will be made of the B&B exemption for whole houses out in the burbs.

_Dara_

murphaph wrote: »

No they can't. Pre-letting expenses are not deductible for a start!

Yeah, not every expense is allowable for sole traders either. They probably have more allowable expenses because they have more expenses than a rental business. In accounting and tax terms, not all qualify. Every business will have its expenses poured over. You get people on here suggesting that mortgage repayments should be deductible despite them being a liability, not an expense.

murphaph

_Dara_ wrote: »

Yeah, not every expense is allowable for sole traders either. They probably have more allowable expenses because they have more expenses than a rental business. In accounting and tax terms, not all qualify. Every business will have its expenses poured over. You get people on here suggesting that mortgage repayments should be deductible despite them being a liability, not an expense.

The interest is an expense but is not allowed in full. Pre letting expenses like say fire extinguishers and smoke alarms are not allowed. Seriously...being a landlord is not treated the same as being a small business. If I open a restaurant my fire extinguishers are a deductible expense even if I buy them before my restaurant opens. If I buy a property to rent out my fire extinguishers are not deductible if I buy them before letting commences. Go figure.

davindub

murphaph wrote: »

The interest is an expense but is not allowed in full. Pre letting expenses like say fire extinguishers and smoke alarms are not allowed. Seriously...being a landlord is not treated the same as being a small business. If I open a restaurant my fire extinguishers are a deductible expense even if I buy them before my restaurant opens. If I buy a property to rent out my fire extinguishers are not deductible if I buy them before letting commences. Go figure.

Claim them as fixtures and fittings.

They are not exactly massive expenses though? Trades will pay a lot more tax over their lifetime than case V investments. Between rates, bid contributions, FOG licenses, vat, ER Prsi, corporation tax if Ltd, income tax on distributions, its not exactly preferential treatment!

_Dara_

murphaph wrote: »

The interest is an expense but is not allowed in full. Pre letting expenses like say fire extinguishers and smoke alarms are not allowed. Seriously...being a landlord is not treated the same as being a small business. If I open a restaurant my fire extinguishers are a deductible expense even if I buy them before my restaurant opens. If I buy a property to rent out my fire extinguishers are not deductible if I buy them before letting commences. Go figure.

davindub wrote: »

Claim them as fixtures and fittings.

They are not exactly massive expenses though? Trades will pay a lot more tax over their lifetime than case V investments. Between rates, bid contributions, FOG licenses, vat, ER Prsi, corporation tax if Ltd, income tax on distributions, its not exactly preferential treatment!

Exactly. Those pre-let items don’t amount to much and certainly don’t justify a lower tax rate.

murphaph

_Dara_ wrote: »

Exactly. Those pre-let items don’t amount to much and certainly don’t justify a lower tax rate.

I never said rental income should be taxed preferentially.

I just said it should be treated the same as other income and exactly the same things should be deductible.

If I buy a second hand property and it needs a deep clean before the first letting I should be able to deduct that. I can in Germany where landlords are treated identically to other businesses including the deductibility of mortgage interest in full.

Ireland wants landlords to be regulated like proper businesses but doesn't want the tax code to treat them as such. It's a double standard.

_Dara_

murphaph wrote: »

I never said rental income should be taxed preferentially.

I just said it should be treated the same as other income and exactly the same things should be deductible.

If I buy a second hand property and it needs a deep clean before the first letting I should be able to deduct that. I can in Germany where landlords are treated identically to other businesses including the deductibility of mortgage interest in full.

Ireland wants landlords to be regulated like proper businesses but doesn't want the tax code to treat them as such. It's a double standard.

How expenses came up in the first place was that a poster thought rental income should be exempt from the marginal rate because they aren’t allowed as many deductible expenses. I think mortgage interest should be fully deductible but there have seriously been suggestions in this forum by some posters that the full mortgage repayment should be deductible which shows a lack of understanding of accounting basics.

You are making out like everything another business owner presents as a expense is allowable which isn’t the case. Check out what is and isn’t allowed for other classes of income. AND all the other costs sole traders have that landlords don’t, as outlined by the other poster there.

_Dara_

_Dara_ wrote: »

Exactly. Those pre-let items don’t amount to much and certainly don’t justify a lower tax rate.

Them items don't but what about renovating and kitting out a rental property, that could amount to a very large amount and its madness that its not tax deductible. I still maintain that the mortgage payment should be fully tax deductible but lets not go arguing that however capital allowances should definitely apply, i.e. you should be able to write off a certain value of the property against tax this is allowed is at the very least some other businesses.

Another thing you are not allowed to do as far as I'm aware is write off losses in rental business against other sources of income. Again you can do this in at least some other businesses. i.e. you have a side business and a PAYE job, heavily invest in the side business thus incur losses but then reduce your tax bill in the PAYE job meaning your net investment in the business is lower in real terms due to tax savings.

As another example as far as I'm aware a LL cannot claim capital allowances on a portion of the value of his car, this is another way of reducing the tax bill in other businesses even if the car gets very little use in the business.

All these things (and more) start to add to be very significant savings in tax very quickly.

Graham

Mod Note: Moved to separate thread.

davindub

Raelyn Scruffy Sunburn wrote: »

_Dara_ wrote: »

Exactly. Those pre-let items don’t amount to much and certainly don’t justify a lower tax rate.

Them items don't but what about renovating and kitting out a rental property, that could amount to a very large amount and its madness that its not tax deductible. I still maintain that the mortgage payment should be fully tax deductible but lets not go arguing that however capital allowances should definitely apply, i.e. you should be able to write off a certain value of the property against tax this is allowed is at the very least some other businesses.

Another thing you are not allowed to do as far as I'm aware is write off losses in rental business against other sources of income. Again you can do this in at least some other businesses. i.e. you have a side business and a PAYE job, heavily invest in the side business thus incur losses but then reduce your tax bill in the PAYE job meaning your net investment in the business is lower in real terms due to tax savings.

As another example as far as I'm aware a LL cannot claim capital allowances on a portion of the value of his car, this is another way of reducing the tax bill in other businesses even if the car gets very little use in the business.

All these things (and more) start to add to be very significant savings in tax very quickly.

No losses reduce paye taxable income. You do recalculate tax based on the total taxable income.

Browney7

Raelyn Scruffy Sunburn wrote: »

.... I still maintain that the mortgage payment should be fully tax deductible but lets not go arguing that however capital allowances should definitely apply, i.e. you should be able to write off a certain value of the property against tax this is allowed is at the very least some other businesses.

Allowing the capital repayment as being tax deductible is nothing more than creating a magic money tree and is an absolutely bonkers notion (as has been pointed out to you numerous times in multiple threads). Not to mention how it would disadvantage landlords who own their properties outright versus those who choose to leverage themselves up to the hilt.

Regarding offsetting a value of the property, the last time I checked, property isn't exactly like plant and equipment and depreciates to zero/scrap value over time. Maybe I need to re-examine this notion of mine?

Baby01032012

Browney7 wrote: »

Allowing the capital repayment as being tax deductible is nothing more than creating a magic money tree and is an absolutely bonkers notion (as has been pointed out to you numerous times in multiple threads). Not to mention how it would disadvantage landlords who own their properties outright versus those who choose to leverage themselves up to the hilt.

Regarding offsetting a value of the property, the last time I checked, property isn't exactly like plant and equipment and depreciates to zero/scrap value over time. Maybe I need to re-examine this notion of mine?

One of the contributory factors to the last boom and bust WAS allowing capital as a tax deductible expense i.e. Section 23 relief where the cost of the build could be offset against ones total rental income. All it did was create a false economy in places in the midlands where there was no real market or need for property.

pc7

One of the main things I can't get my head around as as landlord is that you have to prepay for the tax year to come on income you don't have (prelim payment). I really feel the property tax should also be deductible. I think someone was considering taking a case either hear or on AAM, I must go look again.

Browney7

Browney7 wrote: »

Regarding offsetting a value of the property, the last time I checked, property isn't exactly like plant and equipment and depreciates to zero/scrap value over time. Maybe I need to re-examine this notion of mine?

There are capital allowances against buildings/construction costs also in certain businesses. There is no doubt that a rental property suffers from wear and tear over time and will need renovation, so why should this not be reflected in allowing a capital allowance. The fact the price of the house could rise or fall due to the market is irrelevant. Also machinery, equipment etc is often still worth quite a lot of money after its been fully written off across 8 years.

CIARAN_BOYLE

pc7 wrote: »

One of the main things I can't get my head around as as landlord is that you have to prepay for the tax year to come on income you don't have (prelim payment).

by 14 November 2017 you need to pay 90% of the 2017 liability or 100% of what the 2016 liability towards 2017.

why would you be able to put off paying the 2017 liability til 2018?

the preliminary payment is on the income in 2017 to date.

handlemaster

note 100% interest is tax deductible if u rent to welfare tenant for minimum 3 years. onky after three year period is up can you claim tge extra 25% oer year for the three years

murphaph

Browney7 wrote: »

Regarding offsetting a value of the property, the last time I checked, property isn't exactly like plant and equipment and depreciates to zero/scrap value over time. Maybe I need to re-examine this notion of mine?

I can depreciate my German rental property on my German tax return so the concept isn't as crazy as you think. The depreciation rate is much slower than for plant. It's either 2.5% pa over 40 or 2% pa over 50 years depending on when the property was constructed.

Marcusm

murphaph wrote: »

No they can't. Pre-letting expenses are not deductible for a start!

Pre trading expenses are not deductible for a business either. The general rule for deductions is that the Case V profit is calculated on the same basis as the profits of a trade such that the original statement held more truth than falsehood.

Baby01032012

On the business argument I find the CAT discrimination the biggest. As it's not considered a trading business any transfer for CAT purposes is subject to full CAT at 33% where as a trading business can avail of business relief and reduce the business transfer value by 90%.

murphaph

Marcusm wrote: »

Pre trading expenses are not deductible for a business either. The general rule for deductions is that the Case V profit is calculated on the same basis as the profits of a trade such that the original statement held more truth than falsehood.

So if I open a restaurant on the Saturday a deep clean on the Friday is not deductible?

murphaph

murphaph wrote: »

So if I open a restaurant on the Saturday a deep clean on the Friday is not deductible?

And buying all the equipment, fixtures and fittings (vat will be reclaimable on all that also).

relax carry on

Pre trading expenses in case I and case II.

Section 82 TCA 1997 provides that certain pre-trading expenses of a trade or profession
are allowable in calculating the trading income of that trade or profession once it
commenced. The relief applies to trades or professions, whether incorporated or not,
which commence on or after 22 January 1997.
Under Section 82, a deduction is available in respect of pre-trading expenses which:
 are incurred in the three years prior to commencement of the trade or profession,
and
 apart from Section 82 would not be allowable, but would have been allowable if
they had been incurred after the date of commencement of the trade or
profession.
Accordingly, the provisions of Section 81 apply for the purposes of calculating the
deduction. For example, only pre-trading expenses which were wholly and exclusively
laid out or expended for the purposes of the trade or profession are allowable.
No relief is allowable under any other provision in respect of a payment which qualifies
for relief under Section 82.
1. Expenses
Examples of pre-trading expenses are:
 Accountancy fees
 Advertising costs
 Costs of feasibility studies
 Costs of preparing business plans
 Rent paid for the premises from which the trade or profession operates.

https://www.revenue.ie/en/tax-professionals/tdm/income-tax-capital-gains-tax-corporation-tax/part-04/04-06-08.pdf

Case V rental income is not covered by the above.