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Rental income tax query

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  • 10-11-2019 10:11am
    #1
    Road-Hog
    Registered Users Posts: 1,412 ✭✭✭


    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....?


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    #2
    [Deleted User]
    Posts: 5,121 ✭✭✭ [Deleted User]


    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.


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    #3
    searay
    Registered Users Posts: 436 ✭✭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.


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    #4
    [Deleted User]
    Posts: 5,121 ✭✭✭ [Deleted User]


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


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    #5
    riclad
    Registered Users Posts: 8,184 ✭✭✭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 .


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    #6
    Geuze
    Registered Users Posts: 13,105 ✭✭✭✭Geuze


    The 200 is not an expense.

    It is repaying the debt.

    So it is saving.


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    #7
    steamsey
    Registered Users Posts: 686 ✭✭✭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.


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    #8
    [Deleted User]
    Posts: 5,121 ✭✭✭ [Deleted User]


    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.


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    #9
    ted1
    Registered Users Posts: 23,309 ✭✭✭✭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.


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    #10
    riclad
    Registered Users Posts: 8,184 ✭✭✭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


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    #11
    [Deleted User]
    Posts: 5,121 ✭✭✭ [Deleted User]


    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.


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    #12
    Uriel.
    Registered Users Posts: 8,061 ✭✭✭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.


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    #13
    riclad
    Registered Users Posts: 8,184 ✭✭✭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 .


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    #14
    Grumpypants
    Registered Users Posts: 7,762 ✭✭✭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


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    #15
    awec
    Administrators Posts: 53,434 Admin ✭✭✭✭✭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?


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    #16
    Grumpypants
    Registered Users Posts: 7,762 ✭✭✭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.


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    #17
    riclad
    Registered Users Posts: 8,184 ✭✭✭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 .


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    #18
    ted1
    Registered Users Posts: 23,309 ✭✭✭✭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.


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    #19
    The_Conductor
    Moderators, Society & Culture Moderators Posts: 32,279 Mod ✭✭✭✭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.


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    #20
    awec
    Administrators Posts: 53,434 Admin ✭✭✭✭✭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.


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    #21
    awec
    Administrators Posts: 53,434 Admin ✭✭✭✭✭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.


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    #22
    ted1
    Registered Users Posts: 23,309 ✭✭✭✭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


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    #23
    awec
    Administrators Posts: 53,434 Admin ✭✭✭✭✭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.


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    #24
    ted1
    Registered Users Posts: 23,309 ✭✭✭✭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.


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    #25
    The_Conductor
    Moderators, Society & Culture Moderators Posts: 32,279 Mod ✭✭✭✭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).


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    #26
    awec
    Administrators Posts: 53,434 Admin ✭✭✭✭✭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.


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    #27
    davindub
    Registered Users Posts: 1,447 ✭✭✭davindub


    ted1 wrote: »
    A house devaluing by more than 7,000 a year.

    You can use CGT losses against future CGT gains.


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    #28
    IAmTheReign
    Registered Users Posts: 339 ✭✭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.


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    #29
    Geuze
    Registered Users Posts: 13,105 ✭✭✭✭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.


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    #30
    awec
    Administrators Posts: 53,434 Admin ✭✭✭✭✭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.


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    #31
    Graham
    Moderators, Society & Culture Moderators Posts: 17,642 Mod ✭✭✭✭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.


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