Rental income and tax deductible items

Asdfgh2020

I have a rental property on which no profit is generated ie I have to top up the rent to cover the mortgage payment. In any case as it’s coming up to tax return time I have a query about deductible expenses.

I know that the interest on the mortgage is now back at 100% deductible but I’m never sure about items like costs of repairs e.g plumbing, cost of painting (that I carried out myself i.e. cost of paint only) Are plumbing and painting regarded as capital improvements and therefore deductible over an 8 year period i.e 12.5% per year.

Geuze

Please note that the mortgage repayment is not included and not relevant when determining your rental profits.

Rental profits = gross rent less mortgage interest less expenses

I suggest that every rental property in Ireland generates rental profits.

Your question seems to be about the distinction between repairs and capital improvements.

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

General expenses

Allowable expenses include:

• rates you pay to a local authority for the property
• rents you pay for property such as ground rents
• insurance premiums against fire and public liability
• maintenance of your property such as cleaning, painting and decorating
• property fees before you first rent out your property such as management, advertising, legal or accountancy fees
• cost of any service or goods you provide that are not repaid by your tenant (such as electricity, central heating, telephone, service charges, water and refuse collection).
• certain mortgage protection policy premiums
• expenses in between renting out the property in certain circumstances
• capital allowances
• repairs, such as rot treatment, mending windows, doors or machines
• certain pre-letting expenses on vacant residential property
• the cost of registering with the Residential Tenancies Board (RTB).

You must keep full and accurate records of all expenses for each property you rent out.

You may partly let a premises. You can only claim the portion of the expenses related to the part of the property that is let. For example if half the rooms are let, then half of the expenses can be claimed.

The receipt of rent is treated as the carrying on of a trade. Expenses are only allowed to the extent that they would be allowed for that trade.

Mortgage interest

You may be allowed claim Mortgage Interest Relief against your rental income. The interest must be from a mortgage that is used to purchase, improve or repair your rental property.

You can claim Mortgage Interest Relief if you are registered with the Residential Tenancies Board (RTB):

• while your property is rented out
• in between renting out the property as long as you do not live in it during that time.

You cannot claim Mortgage Interest between the time you buy the property and the time you first rent out the property.

Mortgage Interest Relief is restricted to a percentage of the interest as follows:

 Percentageinterest accrued on or after 7 April 2009 to 31 December 201675%interest accrued from 1 January 2017 to 31 December 201780%interest accrued from 1 January 2018 to 31 December 201885%interest accrued from 1 January 2019100%

For the purposes of the restriction, interest is treated as accruing on a daily basis. The date the loan is taken out is not relevant.

In certain situations, you may be able to claim 100% mortgage interest relief in the years when the relief was restricted. To qualify you must have:

• rented out your property for three years to tenants receiving certain social housing supports.
• registered with the Residential Tenancies Board (RTB).

See the manual  Part 04-08-06 for more information on the deduction of Mortgage Interest.

See the manual Part 04-08-10 for more information on registering tenancies with the RTB.

Capital allowances

You can claim capital allowances on the cost of furniture and fittings in your property. This is known as ‘wear and tear allowances’ or ‘depreciation’.

The current rate for these allowances is 12.5% of the cost per year, for a maximum of eight years. The allowances may include:

• furniture you purchased for your rental property
• the cost of the purchase of white goods such as a fridge or a dishwasher.
• Example 1
• You purchased a suite of furniture for €1,000. The wear and tear allowance of 12.5% for this is €125 per year.
• You can claim this against the rental income for the next eight years.

Geuze

What expenses are not allowed?

You cannot deduct the following expenses when you are calculating your rental profit or loss:

• pre-letting expenses, other than property fees before you first rented out the property. However certain pre-letting expenses on vacant residential property may be deductible.
• post-letting expenses
• capital expenses on property improvements unless allowed under an incentive scheme
• expenses on premises rented out on an uneconomic basis, where it is not possible to make a profit from the rent received
• expenses in between renting out the property in certain circumstances
• interest from the time you buy the property up until it is first rented out
• Local Property Tax (LPT)
• any cost for your own labour when carrying out repairs to the property.