Rental income: Pre-letting expenditure - Dec 2017 - up to 5000?

Window1

Hi - started letting a house at beginning of 2018 - 1st time landlord and with a sibling!We are PAYE people so I am looking now to see how we go about declaring the rental income which for 2018 is about 4000 euro for each of us. As far as I can see from my research, if under 5000 we can declare it on our Form 12s. And that's gross rental income before any allowable deductions.

In my research for allowable deductions, I have come across the following on an accountants website but I have not seen it on Revenue anywhere:

"From 25 December 2017, up to €5,000 can be claimed as a deduction for pre-letting expenditure on a vacant property that has been vacant for at least 12 months. The property must be rented for at least 4 years or this deduction is subject to a clawback. The expenses are claimed in the year that the property is first rented."

The house had been vacant for more than 12 months. Its just that I cannot see any reference to this on Revenue. Can anyone confirm this? Is it a change that came in on Christmas Day 2017? Seems strange.

Thanks.

Stratvs

This is what you're looking for ( from Revenue's site ) :-

https://www.revenue.ie/en/tax-professionals/tdm/income-tax-capital-gains-tax-corporation-tax/part-04/04-08-11.pdf

Window1

Stratvs wrote: »

This is what you're looking for ( from Revenue's site ) :-

https://www.revenue.ie/en/tax-professionals/tdm/income-tax-capital-gains-tax-corporation-tax/part-04/04-08-11.pdf

Thanks for that which I have just read now. So can I just double check, does this thing that came in from 25/12/17 negate the following Q/A I came across in my research?

"Which costs can I not claim as a rental expense?
A number of costs can't be included on your list of rental expenses, including:

Pre/Post-letting expenses – if you're renting out property, repairs or alterations taken out when the property is not under lease are not tax deductible."

Stratvs

Window1 wrote: »

Thanks for that which I have just read now. So can I just double check, does this thing that came in from 25/12/17 negate the following Q/A I came across in my research?

"Which costs can I not claim as a rental expense?
A number of costs can't be included on your list of rental expenses, including:

Pre/Post-letting expenses – if you're renting out property, repairs or alterations taken out when the property is not under lease are not tax deductible."

If the conditions are met then subject to the limits imposed the pre-letting expenditure is allowed.

Otherwise the pre-letting expenditure is still not deductible.

This was a new initiative to try and get vacant properties rented.

Calahonda52

Window1 wrote: »

Thanks for that which I have just read now. So can I just double check, does this thing that came in from 25/12/17 negate the following Q/A I came across in my research?

"Which costs can I not claim as a rental expense?
A number of costs can't be included on your list of rental expenses, including:

Pre/Post-letting expenses – if you're renting out property, repairs or alterations taken out when the property is not under lease are not tax deductible."

The link above states very clearly that the 5k deduction must meet the allowable Case V deduction rules if incurred while the property was let.

So it's not allowing deductions that would not be allowed if the property was let.

Where a person incurs expenditure on a vacant premises during the twelve months prior to first letting after the twelve month vacant period, and this expenditure would be authorised as a Case V deduction under section 97(2) TCA if it had been incurred on or after the first day the premises was let, then it may be authorised as a Case V deduction under section 97A(3) TCA. The subsection applies notwithstanding the restrictions that would otherwise be imposed by section 105 TCA on rent and interest on money borrowed prior to the premises being occupied.

Window1

Thanks to you both for those replies. I feel I am getting a little in over my head! I have just now tried to research what "Case V" is but I am not much the wiser!

If I could give examples it would help greatly. For eg we bought a stove burner and got it installed to replace an open fireplace, we replaced the washing machine, the fridge freezer, got a cleaner in, got a redecorator in, chimney cleaner etc. I had previously understood that none of this was allowable as it was all prior to the tenants moving in. Now the 25/12/17 thing makes me think maybe these are allowable deductions. The house had been vacant for over 5 years.

Many thanks.

Stratvs

Window1 wrote: »

Thanks to you both for those replies. I feel I am getting a little in over my head! I have just now tried to research what "Case V" is but I am not much the wiser!

If I could give examples it would help greatly. For eg we bought a stove burner and got it installed to replace an open fireplace, we replaced the washing machine, the fridge freezer, got a cleaner in, got a redecorator in, chimney cleaner etc. I had previously understood that none of this was allowable as it was all prior to the tenants moving in. Now the 25/12/17 thing makes me think maybe these are allowable deductions. The house had been vacant for over 5 years.

Many thanks.

Case V of Schedule D is where you will find all tax information on rental income. However to simplify it Revenue have a guide to Rental Income

https://www.revenue.ie/en/property/rental-income/irish-rental-income/index.aspx

Equipment such as washing machine, freezer etc. last for some years so while they are allowable they don't go in against income all at once. They are allowed at 12.5%pa of the cost so it takes 8 years to write off. You claim 1/8 of the cost each year.

Allowed against income as repairs would be painting, cleaning incl chimney, etc.

Other items allowed against income would be insurance on the property, RTB and letting fees.

Calahonda52

Stratvs wrote: »

Case V of Schedule D is where you will find all tax information on rental income. However to simplify it Revenue have a guide to Rental Income

https://www.revenue.ie/en/property/rental-income/irish-rental-income/index.aspx

Equipment such as washing machine, freezer etc. last for some years so while they are allowable they don't go in against income all at once. They are allowed at 12.5%pa of the cost so it takes 8 years to write off. You claim 1/8 of the cost each year.

Allowed against income as repairs would be painting, cleaning incl chimney, etc.

Other items allowed against income would be insurance on the property, RTB and letting fees.

Assuming he is registered with the RTB, will he get interest relief on any mortgage as part of the 5k?
.
from your link
.
You cannot claim Mortgage Interest between the time you buy the property and the time you first rent out the property.

From 1 January 2017, you can deduct 80% of the interest paid on your mortgage on a rental property. From January 2018, you will be able to deduct 85% of the interest paid on your mortgage on a rental property. For earlier years, the figure is 75% of the interest paid.

Stratvs

Calahonda52 wrote: »

Assuming he is registered with the RTB, will he get interest relief on any mortgage as part of the 5k?
.
from your link
.
You cannot claim Mortgage Interest between the time you buy the property and the time you first rent out the property.

From 1 January 2017, you can deduct 80% of the interest paid on your mortgage on a rental property. From January 2018, you will be able to deduct 85% of the interest paid on your mortgage on a rental property. For earlier years, the figure is 75% of the interest paid.

Interesting point. In the original link at post #2 :-

Where a person incurs expenditure on a vacant premises during the twelve months prior to first letting after the twelve month vacant period, and this expenditure would be authorised as a Case V deduction under section 97(2) TCA if it had been incurred on or after the first day the premises was let, then it may be authorised as a Case V deduction under section 97A(3) TCA. The subsection applies notwithstanding the restrictions that would otherwise be imposed by section 105 TCA on rent and interest on money borrowed prior to the premises being occupied. The deduction is subject to a cap and to claw back in certain circumstances, outlined below.
4 Cap on deduction
The deduction authorised is capped at €5,000 per vacant premises by section 97A (4) TCA.

Reading that, it looks to me like they could claim interest relief, subject to RTB registration and the relevant max % for the year.

I’d be interested in other posters views on this.

Window1

Thanks for all the replies so far to my original post and sorry I cannot input anything to the mortgage interest query raised due to being a newbie to renting out a house.

In terms of pre-renting allowable expenses since the 25/12/17 change, would a skip hire fee be acceptable as we got one in to clear out old furniture etc to prepare the house for tenants?

I understand thanks to the posters how to claim over a number of years for new items such as washing machines, fridge freezers. Can smaller items such as buying new carbon monoxide alarms, kettle etc be included here or is it only big item purchases?

Is the replacing of a fireplace with a stove allowable? Between the stove (439), the fittings (300) and the installation (430) it all mounts up!

Finally, but not for the 2018 Form 12, I am thinking of replacing windows and doors as the tenants are complaining about heat loss. The current windows are c30 years old. Will I be allowed include those costs in the 2019 returns?

Many thanks. Hopefully I can contribute something back to the Boards community on a topic I am knowledgeable on!

Stratvs

Window1 wrote: »

Thanks for all the replies so far to my original post and sorry I cannot input anything to the mortgage interest query raised due to being a newbie to renting out a house.

In terms of pre-renting allowable expenses since the 25/12/17 change, would a skip hire fee be acceptable as we got one in to clear out old furniture etc to prepare the house for tenants?

I understand thanks to the posters how to claim over a number of years for new items such as washing machines, fridge freezers. Can smaller items such as buying new carbon monoxide alarms, kettle etc be included here or is it only big item purchases?

Is the replacing of a fireplace with a stove allowable? Between the stove (439), the fittings (300) and the installation (430) it all mounts up!

Finally, but not for the 2018 Form 12, I am thinking of replacing windows and doors as the tenants are complaining about heat loss. The current windows are c30 years old. Will I be allowed include those costs in the 2019 returns?

Many thanks. Hopefully I can contribute something back to the Boards community on a topic I am knowledgeable on!

Skip & small items smoke alarms etc. - should all be ok as part of Repairs/Maint expense.

Stove & windows are tricky items. If you are replacing / repairing part of an item e.g. repairing windows or say a new burner for a boiler then they would be repairs. However if you are introducing something new, a stove that was not there before then that is a capital item.
Some capital items can qualify for Wear & Tear at 12.5%pa but need to be classed as fixtures & fittings e.g. furniture, appliances etc.
Other capital items are classed as enhancement to the building and would only be allowed on a subsequent sale against any Capital Gains Tax e.g. a new conservatory.
Replacing windows like for like might qualify as a repair but replacing old single glazed aluminium windows with modern triple glazed PVC could be classed as enhancement. Of course one then has the counter argument that you can't replace like for like now since the industry standard now is PVC. Windows aren't fixtures/fittings as one normally wouldn't take them with you on moving house.
This article suggests upgrades to windows and heating qualify for Wear & Tear over the 8 years.

Unfortunately you will not find a Revenue document which outlines the allowed treatment for specific items such as these just the guide as linked to earlier. Rental income is self-assessed so one has to make a call on what is considered reasonable treatment in the particular circumstances of the case.