Rental income tax query

The_Conductor · 13-11-2019 3:33pm

riclad wrote: »

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 .

The fact that their rent is less than their mortgage payment- does not mean they are not making a profit. Its actually not all that unusual for this situation- esp. as the interest rate for investors can be north of 4% at the moment.

riclad wrote: »

we are in a housing crisis ,if the allowance on mortgage interest was gone they would be out of the business .

The flipside of this- is were the perverse incentive to borrow removed- people would instead be incentivised to pay down their debts. I'm sorry- but I subscribe to the mantra- 'neither a borrower nor a lender be...…...'

riclad wrote: »

I think we should give any landlords who rent to people on welfare ,
single mothers 120 per cent tax credits on mortgage interest

120% tax credit on mortgage interest if you let to a social welfare tenant?
Any of the prudent landlords who have been paying down their debts- get whacked- while everyone else stops paying down any capital, as its counter productive to reduce the o/s balance due, as it'll cost them their tax credit.

riclad wrote: »

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.

The incentive to take on a social welfare tenant rather than a private tenant- is simply the landlord gets his rent- supposedly on an identical basis for both. If the manner in which a social welfare tenant pays his/her rent differs from a private tenant (for example- a private tenant pays their rent in advance, whereas a social welfare tenant pays their rent in arrears)- then the difference should be mitigated, so there is no effectual difference between the tenants. In any event- a landlord cannot discriminate against a social welfare tenant- they have to treat them on an akin basis with a private sector tenant.

Lack of play area and/or a kitchen etc- can be similar for anyone really. Most apartments don't have a play area- and tiny galley kitchens with an under counter fridge as your sole food store- are also far from unusual. Its not ideal for anyone...…….

Browney7 · 13-11-2019 3:49pm

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.

Capital repayments being allowable against tax would disadvantage landlords who owned the property outright versus those who have leveraged up their investment. It would be a magic money tree and no one would ever pay tax on rental income so far from the "madness" you speak of.

Unless of course you're advocating that the value of the property would be written down to zero over time (as capital is repaid) and then the eventual sale proceeds from the asset would be taxed at the investor's marginal rate?

The_Conductor · 13-11-2019 3:53pm

Browney7 wrote: »

that the value of the property would be written down to zero over time (as capital is repaid) and then the eventual sale proceeds from the asset would be taxed at the investor's marginal rate?

This is precisely what happens in Germany- its written down by a set percentage per annum against which costs can be allocated and the bulk of the tax due- is on disposal of the asset.

Browney7 · 13-11-2019 3:55pm

The_Conductor wrote: »

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.

People who receive dividend payments on equities pay tax on these proceeds after corporation tax has already been paid before distribution to their shareholders so hardly the "woe is me" line our cashflow negative yet wealth accumulating landlords are spouting.

This topic of loss versus cashflow constantly comes up on this forum and it's as if people forget that there is eventual sale proceeds from the property. Unless of course all rental property self destructs once the mortgage is repaid. If people really are blowing a hole in their wealth (making actual losses which I expect are rare but not impossible) by renting out their property they need to sell

davindub · 13-11-2019 6:35pm

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.

If you understand the tax it's completely fair.

Its because you would be hit with a balancing charge on selling the property exactly the same as a business would if they sold the premises for more than tax written down value.

Geuze · 14-11-2019 10:59am

riclad wrote: »

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 .

Gross rental income can often be less than the mortgage repayment, and large profits are being made.

Example

Gross rental income = 12,000

Mortgage repayments = 14,000 of which 10,000 capital repayment and 4,000 interest.

Net rental profits = 8,000 less other allowable deductions.

14-11-2019 1:48pm

Geuze wrote: »

Gross rental income can often be less than the mortgage repayment, and large profits are being made.

Example

Gross rental income = 12,000

Mortgage repayments = 14,000 of which 10,000 capital repayment and 4,000 interest.

Net rental profits = 8,000 less other allowable deductions.

Honestly how people can see a loss making rental as being profitable is beyond me.

No other business could operate under such conditions.

Profitable would mean that the LL has additional income in his bank account every month after mortgage and taxes are paid.

riclad · 14-11-2019 2:02pm

Net rental profit = 8000, quote .

this 8k will be probably taxed at 40 per cent .if the landlord is a paye worker .

When i say a landlord not making a profit i,m talking about someone
who is paying mortgage 14 k per year ,rental income is 8,400 per year.
this landlord has to pay tax on rental income, plus service charges on the apartment 1000 euro.
the apartment is in negative equity of 100k approx,
so she cannot afford to sell it.
she bought it in 2006 just before the crash .
It may never reach the value it was bought for.
its in a rural area .
1000,s of people bought house,s in the boom, before 2008 , i,ll be a landlord, in 5 years time the house value will go up by 40 per cent.
Since they are now in negative equity , they will have to continue as a landlord even if the profit they make is small or close to zero.
in 2005 it was very easy to borrow a loan to buy an investment property for 5-6 times your annual salary .
There was almost no regulation of bank lending in the area of investment property.
in 2005 or 2006 house prices all over ireland were rising .

Obvious Desperate Breakfasts · 14-11-2019 3:21pm

Browney7 wrote: »

Capital repayments being allowable against tax would disadvantage landlords who owned the property outright versus those who have leveraged up their investment. It would be a magic money tree and no one would ever pay tax on rental income so far from the "madness" you speak of.

Unless of course you're advocating that the value of the property would be written down to zero over time (as capital is repaid) and then the eventual sale proceeds from the asset would be taxed at the investor's marginal rate?

That’s a good point. Why should a mortgage-free landlord have to pay more tax than a mortgage-paying landlord? I suppose one could say they are lucky to have a mortgage-free property but if it was inherited, they would likely have had to pay capital gains tax on it.

The_Conductor · 14-11-2019 3:33pm

Obvious Desperate Breakfasts wrote: »

That’s a good point. Why should a mortgage-free landlord have to pay more tax than a mortgage-paying landlord? I suppose one could say they are lucky to have a mortgage-free property but if it was inherited, they would likely have had to pay capital gains tax on it.

This is one reason why I think the servicing of debt, of any nature, should never be considered an allowable expense from a tax perspective, for any business (not just confined to the residential tenancy sector).

There is a perverse incentive to load up on debt- sure you can use it to shelter cashflow from the tax man...……...

riclad · 14-11-2019 3:59pm

If a landlord pays off the mortgage , he makes more profit,
he has no loan interest to claim as an expense against tax.
he will pay more tax than someone who rents a house but is still paying off the mortage .
Unless he has loss,s from another property to use an an expense .
I,m not a tax expert but it may be wiser to invest in a reit fund
than to buy a house using an investment mortage .
And you do not have the stress of dealing with tenants .

qoute ;

Legislation introduced in 2013 allowed for the establishment of Reits, which are generally exempt from corporation tax and levies on gains from property values or capital gains tax (CGT). The idea is to shift tax liabilities on to shareholders who must, by law, receive at least 85 per cent of a Reit’s rental profits

Obvious Desperate Breakfasts · 14-11-2019 4:13pm

riclad wrote: »

If a landlord pays off the mortgage , he makes more profit,
he has no loan interest to claim as an expense against tax.
he will pay more tax than someone who rents a house but is still paying off the mortage .
Unless he has loss,s from another property to use an an expense .
I,m not a tax expert but it may be wiser to invest in a reit fund
than to buy a house using an investment mortage .
And you do not have the stress of dealing with tenants .

qoute ;

Legislation introduced in 2013 allowed for the establishment of Reits, which are generally exempt from corporation tax and levies on gains from property values or capital gains tax (CGT). The idea is to shift tax liabilities on to shareholders who must, by law, receive at least 85 per cent of a Reit’s rental profits

Oh sure, but it’s not a huge amount more tax, whereas if capital repayments could be subtracted from the rental income, it would be quite a big difference in tax bills between mortgage holders and those who own the property outright.

The_Conductor · 14-11-2019 4:16pm

Obvious Desperate Breakfasts wrote: »

Oh sure, but it’s not a huge amount more tax, whereas if capital repayments could be subtracted from the rental income, it would be quite a big difference in tax bills between mortgage holders and those who own the property outright.

But why is the taxpayer allowing debt be a tax deductible cost? It encourages people to load up on debt- and discourages clean/clear ownership of units. Its a lot more financially precarious for landlords in the long run, and indeed, similarly for the tenants.

In my eyes- there should be some sort of an incentive to pay down debt- its incredible that there is a perverse incentive not to do so.

Geuze · 14-11-2019 5:56pm

Madden Delightful Treason wrote: »

Honestly how people can see a loss making rental as being profitable is beyond me.

No other business could operate under such conditions.

Profitable would mean that the LL has additional income in his bank account every month after mortgage and taxes are paid.

Every month as the debt is repaid, the equity in the house is building up.

So the landlord is slowly acquiring an asset.

That is the profit/gain.

The_Conductor · 14-11-2019 6:00pm

Geuze wrote: »

Every month as the debt is repaid, the equity in the house is building up.

So the landlord is slowly acquiring an asset.

That is the profit/gain.

However, the most tax efficient way of managing the asset- is to never pay down any principal on the loan- keep the debt associated with the property as high as possible, to have a costbase to offset against cashflow.

Its perverse.

awec · 14-11-2019 6:11pm

Madden Delightful Treason wrote: »

Honestly how people can see a loss making rental as being profitable is beyond me.

No other business could operate under such conditions.

Profitable would mean that the LL has additional income in his bank account every month after mortgage and taxes are paid.

Er, no.

Rental income tax query

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