Rental income tax query

Road-Hog

Can some give their opinion on the following......

To keep things simple I’m going to use round figures and assume that 100% of the interest is tax deductible.....

So example as follows:

Monthly Mortgage payment = €1000
Rent received per month = €800
Interest on mortgage per month = €500

Based on above can the €200 additional ‘top up’ by landlord be classified as an expense and therefore deducted when calculating the tax due to revenue each year....?

Road-Hog

Road-Hog wrote: »

Can some give their opinion on the following......

To keep things simple I’m going to use round figures and assume that 100% of the interest is tax deductible.....

So example as follows:

Monthly Mortgage payment = €1000
Rent received per month = €800
Interest on mortgage per month = €500

Based on above can the €200 additional ‘top up’ by landlord be classified as an expense and therefore deducted when calculating the tax due to revenue each year....?

No - it isn't a tax loss, just cashflow.

searay

Deleted User wrote: »

No - it isn't a tax loss, just cashflow.

Also, assuming other expenses amounted to €50, the €250 excess in rent over interest and expenses is taxable.

For reference:
https://www.revenue.ie/en/property/rental-income/irish-rental-income/what-expenses-are-allowed.aspx

riclad

The revenue do not care if you make a loss on rental property,
you just claim the expense,s against rental income in your annual tax return,
eg 100 mortgage interest paid on the rental property.insurance,
whether you make a loss is not relevant when making a tax return,
when the loan is paid off you,ll make a profit anyway .

Geuze

The 200 is not an expense.

It is repaying the debt.

So it is saving.

steamsey

OP - short answer is a definite no. I think you're making a common mistake by thinking that you should be taxed on your rental profit, and that by having to contribute to the mortgage, you are out of pocket and therefore have no taxable profit.

The fact is that with rental income, you are taxed on the ....income. Not the profit. The bit that you add to the mortgage is not part of the calculation. You keep yourself sane by realising that someone is contributing to paying your mortgage and after time, it will be worth it.

An example calc might go like this:

gross rental income 10,000
less:
mortgage interest 2,000
repairs 1,000
management fees 1,000

Net Rental Income 6,000
x 40% PAYE + USC + PRSI = the taxable amount

Your mortgage contribution does not come into it. The only place the mortgage comes close to coming into it at all is for the mortgage interest relief.

steamsey

steamsey wrote: »

OP - short answer is a definite no. I think you're making a common mistake by thinking that you should be taxed on your rental profit, and that by having to contribute to the mortgage, you are out of pocket and therefore have no taxable profit.

The fact is that with rental income, you are taxed on the ....income. Not the profit. The bit that you add to the mortgage is not part of the calculation. You keep yourself sane by realising that someone is contributing to paying your mortgage and after time, it will be worth it.

An example calc might go like this:

gross rental income 10,000
less:
mortgage interest 2,000
repairs 1,000
management fees 1,000

Net Rental Income 6,000
x 40% PAYE + USC + PRSI = the taxable amount

Your mortgage contribution does not come into it. The only place the mortgage comes close to coming into it at all is for the mortgage interest relief.

You are mixing up terms too.

You do pay tax on profit - rental profit from the revenue link above being rental income minus allowable expenses.

Either way repayment of the mortgage capital doesn't come into it.

ted1

You pay USC on all money received. If you are married with 1 income. Put the income down to the non working spouse. It’ll reduce the liability

You take what you get,
Say 1000 a month=
12,000 a year

Then you can take off mortgage interest 100% for 2019.

Then take off expenses ground rent, gardening, insurance, maintenance etc

Then take off 12.5% from any furniture, white goods etc there there are.

Then you pay tax on the remainder.

riclad

The way the revenue look at is paye income plus rental income -landlords expenses =amount that can be taxed .
so no one cares if you make a profit or not .
revenue ignore capital payments on the mortgage.
You can only claim for mortgage interest on a rental property.
And there is usc and prsi to be paid too .
In theory you could rent a house for 30 years and never make a profit
until all the mortgage is paid off .
you can put in accountants fee,s as an expense ,
or just fill out an online tax return for your rental income which is free.

https://www.ros.ie/oidc/login/noCertsFound?lang=en&client_id=rosint_rp

riclad

riclad wrote: »

The way the revenue look at is paye income plus rental income -landlords expenses =amount that can be taxed .
so no one cares if you make a profit or not .
revenue ignore capital payments on the mortgage.
You can only claim for mortgage interest on a rental property.
And there is usc and prsi to be paid too .
In theory you could rent a house for 30 years and never make a profit
until all the mortgage is paid off .
you can put in accountants fee,s as an expense ,
or just fill out an online tax return for your rental income which is free.

https://www.ros.ie/oidc/login/noCertsFound?lang=en&client_id=rosint_rp

But again Revenue do care about profits or losses - for eg you can't offset a rental loss against other non rental income, only against future rental profits.

Uriel.

I do my own tax returns to revenue on a single property that I have rented.
I just checked back for the craic when looking at this thread.
Have had property rented since last quarter of 2010 - just marginally out of negative equity in last year or so.

My "profit" after tax in the 9 or so years is: €12,000, that is rental income less the % of allowable interest at applicable (different rates), capital write downs (depreciation), general costs such as repair and maintenance etc. agent fees, mortgage assurance and house insurance etc. This doesn't include obviously, as per the law, the balance of the interest or capital repayment, and I am lucky that the interest is 1.1%.

In that time I have paid revenue actual tax on the property of €17,800 including LPT (property in a non-city, sub €200,000 valuation band).
I don't use LPT as a tax deduction.

Somewhat depressing that revenue are coming out of it better than I am.

riclad

I am assuming the question is from someone renting out one house, or apartment,
not a landlord that has 2 or more units at different locations to rent out .

Grumpypants

Road-Hog wrote: »

Can some give their opinion on the following......

To keep things simple I’m going to use round figures and assume that 100% of the interest is tax deductible.....

So example as follows:

Monthly Mortgage payment = €1000
Rent received per month = €800
Interest on mortgage per month = €500

Based on above can the €200 additional ‘top up’ by landlord be classified as an expense and therefore deducted when calculating the tax due to revenue each year....?

Ignore the mortgage, revenue don't care about that outgoing. You can make a loss on the property but revenue will still tax the "profit".

800-500-100(maintenance). =200.
200 x 12 = 2400.
58% tax on the 2400. About 1400.

So you would get 9600 in rent. pay 12k on your mortgage. 1200 in upkeep and have a tax bill of 1400. Giving you a loss of 5k a year.

Welcome to the wonderful world of filthy rich landlords

awec

Grumpypants wrote: »

Ignore the mortgage, revenue don't care about that outgoing. You can make a loss on the property but revenue will still tax the "profit".

800-500-100(maintenance). =200.
200 x 12 = 2400.
58% tax on the 2400. About 1400.

So you would get 9600 in rent. pay 12k on your mortgage. 1200 in upkeep and have a tax bill of 1400. Giving you a loss of 5k a year.

Welcome to the wonderful world of filthy rich landlords

So you're wiping 12k off your mortage, but it's only costing you 5k? A profit of 7k.

Am I reading that wrong?

Grumpypants

awec wrote: »

So you're wiping 12k off your mortage, but it's only costing you 5k? A profit of 7k.

Am I reading that wrong?

If you can sustain a 5k loss every year for 20-30 years and the property doesn't require significant repair, and the property market doesn't nose dive again. Then yes you could make a profit.....that is ripe for capital gains tax.

riclad

My view is revenue do not care about profit or loss if you have only one rental property, they simply tax your income ,paye plus rental income
minus the expenses you can claim as a landlord, insurance, mortage interest,capital expenses .

ted1

awec wrote: »

So you're wiping 12k off your mortage, but it's only costing you 5k? A profit of 7k.

Am I reading that wrong?

No you are reducing your mortgage. And gambling on property prices not dropping. Any increase has a 33% CGT applied. So more taxes.

The_Conductor

riclad wrote: »

My view is revenue do not care about profit or loss if you have only one rental property, they simply tax your income ,paye plus rental income
minus the expenses you can claim as a landlord, insurance, mortage interest,capital expenses .

I suspect you're close to the mark on this.
Revenue have better things to do than chase the person who has a single property, and is declaring the rental income.
They might at some point in time touch base with the RTB to check that your RTB declaration matches with your Revenue return- however, its a long shot.
That said- they have new computer systems in there that they point at different sectors on a regular basis- to target high risk individuals for audit. It doesn't mean that you're doing anything wrong- or even that you owe additional money- simply that you're classified as 'high risk'- even if the money involved is small enough on the scale of things.

The Form 11 tax return- makes it super easy to declare your rental income- both gross and net- and it works out the tax due.

One thing to consider in all of this- is preliminary tax. Common practice is to pay 100% preliminary tax on the current year's income, despite you having until 31st October of the following year to file your return for this year. This means you get a once-off shock at the beginning- where you are defacto paying two years tax on the rental income- followed by normalisation from year 2 onwards.

The sums involved can be depressing- in every direction- the principal manner of sheltering rental income from the tax man is with debt- which is an appalling state of affairs. I know I'm very much going against prevailing thought by saying this- but I do not think that debt should ever be a tax deductible expense for anyone (in any sector)- I think the whole concept of using debt to shield cashflow is despicable (look at some of the ways it has recently been used to rip off the Irish taxpayer- such as the 425m lent to an Irish subsidiary to buy the National Lottery by the Ontario Teacher's Pension Fund- at a rate wholly unheard of in the modern world- in order to ensure that the Irish subsidiary is never ever profitable. Ironically- this 425m was to have been the money to pay for the new Children's hospital- a bill that is now likely to be north of 2 billion.

When you look at some of the nitty gritty of the tax code- and how there are different rules for the little people to the big people- its remarkable that there hasn't been an uprising in protest at the unfairness of it all. One key tenent of a tax system- has to be equity- however, there is very little equality to be found.

awec

Grumpypants wrote: »

If you can sustain a 5k loss every year for 20-30 years and the property doesn't require significant repair, and the property market doesn't nose dive again. Then yes you could make a profit.....that is ripe for capital gains tax.

You are spending 5k and getting 12k worth of equity. It's a profit.

Yea, it's not a cash profit in your pocket, but you are still quids in, and it's certainly not a loss.

awec

ted1 wrote: »

No you are reducing your mortgage. And gambling on property prices not dropping. Any increase has a 33% CGT applied. So more taxes.

By 12k, but it only cost you 5k.

You pay a tax on the profit you are making from someone else paying off your mortgage, and then you pay tax on the profit you make IF you sell the asset for more than you bought it for.

There is nothing strange about this. It's the exact same as who gets stock awards, they pay tax when they receive the shares and they pay CGT when they sell them.

ted1

awec wrote: »

and then you pay tax on the profit you make IF you sell the asset for more than you bought it for.

But you get nothing for a loss. Business get to carry losses to write off future tax bills

awec

ted1 wrote: »

But you get nothing for a loss. Business get to carry losses to write off future tax bills

What would you define as a loss here?

Again, this appears consistent with investment in stocks.

ted1

awec wrote: »

What would you define as a loss here?

Again, this appears consistent with investment in stocks.

A house devaluing by more than 7,000 a year.

The_Conductor

ted1 wrote: »

A house devaluing by more than 7,000 a year.

Historically, this would be far from unusual (particularly in discounted terms- but during parts of the cycle, in absolute terms).

awec

ted1 wrote: »

A house devaluing by more than 7,000 a year.

That’s not a loss. You don’t lose anything until you sell.

That’s like saying stock holders should be able to write off drops in stock price against their tax liability.

davindub

ted1 wrote: »

A house devaluing by more than 7,000 a year.

You can use CGT losses against future CGT gains.

IAmTheReign

awec wrote: »

You are spending 5k and getting 12k worth of equity. It's a profit.

Yea, it's not a cash profit in your pocket, but you are still quids in, and it's certainly not a loss.

You're forgetting that half of that 12 grand is mortgage interest. So in that example you'd be getting 6 grand of equity for your 5 grand investment.

Geuze

People seem to be thinking that repaying debt is an expense.

It is not.

If you get a loan of 200k, that is borrowing.

If you repay the loan, that is saving.

Capital repayments are saving.

Why would we give tax relief on people's saving?

No business anywhere, of any form, is allowed deduct loan capital repayments from income, as an expense.

awec

IAmTheReign wrote: »

You're forgetting that half of that 12 grand is mortgage interest. So in that example you'd be getting 6 grand of equity for your 5 grand investment.

That is irrelevant. How you fund your investment is of no concern.

You are paying down 12k but it's only costing you 5k, it's a 7k profit.

Graham

awec wrote: »

That is irrelevant. How you fund your investment is of no concern.

You are paying down 12k but it's only costing you 5k, it's a 7k profit.

Can't see how that's accurate awec. The interest is an expense, the capital repaid is the 'profit' element.

The J Stands for Jay

ted1 wrote: »

But you get nothing for a loss. Business get to carry losses to write off future tax bills

As do landlords.

The_Conductor

McGaggs wrote: »

As do landlords.

Most landlords do not get to carry losses forward.
Keep in mind the preponderance of landlords with only 1 property- who make an annual Form 11 rental income declaration for tax purposes.

Profit or loss are immaterial for the vast bulk of these people- they pay PRSI and USC on the rental income before any determination of profit or loss- and income tax on net income.

Net income doesn't necessarily equate with a profit- its simply net income.

Also- the single largest cost allowable against rental income for the vast majority of landlords- is mortgage interest. I firmly believe that interest should be removed as an allowable cost across the board- for a number of reasons- including but not limited to acting as a brake on speculative investment (which is still happening, though to a lesser extent)- but also vulture funds lending their Irish arms funds at artificially high rates to shelter their Irish cashflow from the taxman.

The whole sector is a mess- and really needs to be properly tidied up.

ted1

awec wrote: »

That’s not a loss. You don’t lose anything until you sell.

That’s like saying stock holders should be able to write off drops in stock price against their tax liability.

We are talking when you sell it. Because the general gist of the whole thread is that you are left with your mortgage paid off and you are getting an asset

ted1

McGaggs wrote: »

As do landlords.

Not if they sell at a lower price than they paid.

ted1

The_Conductor wrote: »

Most landlords do not get to carry losses forward.
Keep in mind the preponderance of landlords with only 1 property- who make an annual Form 11 rental income declaration for tax purposes.
.

You can carry losses over year to year. But not if you dispose of the property

Geuze

Geuze wrote: »

People seem to be thinking that repaying debt is an expense.

It is not.

If you get a loan of 200k, that is borrowing.

If you repay the loan, that is saving.

Capital repayments are saving.

Why would we give tax relief on people's saving?

No business anywhere, of any form, is allowed deduct loan capital repayments from income, as an expense.

You aren’t fully correct there other business can claim capital allowances on buildings which reduces their tax bill and effectively reduces their capital repayment. They can also write off a lot more expanse against tax than a LL.

It’s madness that full capital repayments can’t be written off against tax for a rental property. Don’t get how people think it’s in any way fair.

The_Conductor

Madden Delightful Treason wrote: »

Don’t get how people think it’s in any way fair.

People think its fair because there is a particular sense of indignation towards viewing letting property as a business and/or allowing it run as any other business runs.

This indignation is flamed by a particular cohort- who use various political opportunities to meddle in the market- normally to the detriment of both tenants and landlords- neither tend to be a winner in this game.

There is a complete lack of any consideration of the bigger picture- and how cause and effect work.

awec

Madden Delightful Treason wrote: »

You aren’t fully correct there other business can claim capital allowances on buildings which reduces their tax bill and effectively reduces their capital repayment. They can also write off a lot more expanse against tax than a LL.

It’s madness that full capital repayments can’t be written off against tax for a rental property. Don’t get how people think it’s in any way fair.

This is an apples and oranges comparison.

Businesses can claim capital allowances on buildings as a cost of doing business.

Buying property and renting it out is an investment. You are investing in property, the same as someone might invest in the stock market. It is taxed as such. There are no special rules for landlords.

Trying to compare letting property with other businesses is trying to put square pegs in round holes.

3DataModem

Uriel. wrote: »

I do my own tax returns to revenue on a single property that I have rented.
I just checked back for the craic when looking at this thread.
Have had property rented since last quarter of 2010 - just marginally out of negative equity in last year or so.

My "profit" after tax in the 9 or so years is: €12,000, that is rental income less the % of allowable interest at applicable (different rates), capital write downs (depreciation), general costs such as repair and maintenance etc. agent fees, mortgage assurance and house insurance etc. This doesn't include obviously, as per the law, the balance of the interest or capital repayment, and I am lucky that the interest is 1.1%.

In that time I have paid revenue actual tax on the property of €17,800 including LPT (property in a non-city, sub €200,000 valuation band).
I don't use LPT as a tax deduction.

Somewhat depressing that revenue are coming out of it better than I am.

How much has your mortgage reduced by?

awec

The_Conductor wrote: »

People think its fair because there is a particular sense of indignation towards viewing letting property as a business and/or allowing it run as any other business runs.

This indignation is flamed by a particular cohort- who use various political opportunities to meddle in the market- normally to the detriment of both tenants and landlords- neither tend to be a winner in this game.

There is a complete lack of any consideration of the bigger picture- and how cause and effect work.

There is indignation towards it because of the self-pity nonsense posted by landlords trying to make out like they are paupers being screwed over all the time.

Yea, they got the short end of the stick on some things, but they are not treated any differently to any other investor when it comes to tax, so give us all a break.

steamsey

Deleted User wrote: »

You are mixing up terms too.

You do pay tax on profit - rental profit from the revenue link above being rental income minus allowable expenses.

Either way repayment of the mortgage capital doesn't come into it.

I don't believe I mixed anything up. You do not pay tax on your rental profit. You pay tax on your net rental income. Below taken from revenue link - it couldn't be any clearer:

"Rental profit and losses
If your rental income is greater than your rental expenses, you make a rental profit. You calculate your rental profit on a yearly basis.

If your rental expenses are greater than your rental income, you make a rental loss.

You pay tax on your net rental income. This is the gross rental income less your total rental expenses and is at your highest rate of tax."

steamsey

The_Conductor wrote: »

One thing to consider in all of this- is preliminary tax. Common practice is to pay 100% preliminary tax on the current year's income, despite you having until 31st October of the following year to file your return for this year. This means you get a once-off shock at the beginning- where you are defacto paying two years tax on the rental income- followed by normalisation from year 2 onwards.
.

You are right on this of course but whether Revenue care about prelim tax for individuals is debatable. It is indeed a massive shock in year one when you pay 2 years tax at the same time. Anyone been hit with interest / penalties for late or non payment of prelim tax?

steamsey

ted1 wrote: »

You pay USC on all money received. If you are married with 1 income. Put the income down to the non working spouse. It’ll reduce the liability

You take what you get,
Say 1000 a month=
12,000 a year

Then you can take off mortgage interest 100% for 2019.

Then take off expenses ground rent, gardening, insurance, maintenance etc

Then take off 12.5% from any furniture, white goods etc there there are.

Then you pay tax on the remainder.

Be careful here. You can only include capital allowances that relate to fixture & fitting purchases made POST rental. If you buy a brand new apartment, fully kitted kitchen etc, you cannot write those off over 8 years @ 12.5% per year. They are disallowed pre-letting expenses. I've seen people fall foul of this.

ednwireland

steamsey wrote: »

You are right on this of course but whether Revenue care about prelim tax for individuals is debatable. It is indeed a massive shock in year one when you pay 2 years tax at the same time. Anyone been hit with interest / penalties for late or non payment of prelim tax?

never paid the right amount of prelim tax and never been questioned on it. i used to be self employed but now paye. the rental house hasnt turned a profit several years either as its an older house and theres always something to repair.

chimney needed to be replaced this year so another 2k gone, 5k to redo the tarmac last year etc etc

ted1

awec wrote: »

but they are not treated any differently to any other investor when it comes to tax, so give us all a break.

What other investor has caps on his returns ?

The_Conductor

ted1 wrote: »

What other investor has caps on his returns ?

Not to mention the risks associated with the sector.

The_Conductor

awec wrote: »

they are not treated any differently to any other investor when it comes to tax, so give us all a break.

No other investor pays PRSI and USC on their gross income rather than their net income. Rental income *is* treated differently.
Also- LPT and rates are allowable expenses in any other sector- but not residential tenancy lettings.

mitresize5

single property landlord here,

Its a cost every October alright but my view is taxes are taxes and need to be paid, if everyone paid their fair share, from the small market trader who only deals in cash to the large multi national then the countries finances would be in a far better place.

We'd then have all that nice stuff that civilized countries enjoy, like a functioning health service, smaller teacher/pupil ratio. But thats not the Irish way unfortunately

Anyway pontificating aside see it as an investment in your and your families future. Some day the mortgage will be paid and aside from any capital gains you will have a nice monthly income to supplement your retirement fund, put your kids through college etc ...

12 years into a buy to let mortgage the rent is finally greater than the mortgage, which is nice but leads to a greater tax bill every October!

riclad

I know landlord,s that have never made a profit,
they pay tax on rental income .
The rent they get is less than their mortgage payment .
we are in a housing crisis ,if the allowance on mortgage interest was gone they would be out of the business .
I think we should give any landlords who rent to people on welfare ,
single mothers 120 per cent tax credits on mortgage interest .
At the moment there,s no incentive for a landlord to take on a tenant
who is on welfare versus a person who is working full time.
Parents living in hotels for years , with children is not ideal,
there is no play area. they do not have a kitchen to cook in.

DubCount

The_Conductor wrote: »

Not to mention the risks associated with the sector.

Not to mention legitimate business expenses such as LPT not being allowable against income tax.