Tax on rented properties

jennywondering

I have an apartment which I rent out.I pay tax on my profit (rent - expenses).

My rental income is much less than my expenditure this year as the apartment was vacant for 5 months while some renovations (some water damage repairs and some upgrading) took place.

Can my losses for this year be subtracted from profits each year from now until they are used up?

SureYWouldntYa

The upgrades may be considered capital, and instead of being tax deductible in one year it will instead be eligible for capital allowances and the cost allowed at 12.5% annually over 8 years.

The repairs would be allowed reduce any taxable profits for the year. If a loss is generated, it can be carried forward to offset against future rental profits.

Your profit/loss for the year will be income, less capital allowances, less allowable expenses for the year.

Peregrinus

The regular maintenance of your rental property is a deductible expense when computing your liability to income tax on the rent, but capital expenditure — the updgrading — is not. Repairing water damage — e.g. repainting stained areas— would be deductible but if you were addressing the problem by e.g. installing new plumbing, that would not. If you have water-damaged furniture or appliances that you have to throw out and replace, the cost of the replacement furniture/appliances can be claimed over the next 8 years in equal instalments each year.

(When you finally dispose of the property, any capital expenses that are not deductible against income tax may be claimed as part of the acquisition cost so as to reduce your liability to CGT on the gain. So keep the receipts and documentation.)

If your deductions for this year exceed your rental income, your income tax liability on the rent is nil (obviously) and the unused deductions can be carried forward and claimed against rent next year and, if necessary, in years after that.

Distinguishing between expenses that can be claimed against income tax in full in the year they are incurred, expenses that can be claimed over 8 years, and expenses that can't be claimed against income tax at all but can be claimed against capital gains tax can be a bit tricky, so this is a year where you might like to engage an adviser to assist with the preparation of your tax return.

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