Tax advice for first time landlord

tvjunki · 16-07-2018 12:54pm

First you pay 8% USC on total rent if you are on the higher bracket. Then you pay 52% in prsi on the remainder after what few expenses you pay out. You can only deduct 80% of the interest element of your mortgage. This is based on if you are on the higher tax bracket.
You pay property tax which is not tax deductable.
So I think that is where owenbaloneygot is figures. This was mentioned IPOA about the amount of tax landlords pay.

So if you get a 1000euros you pay over 600euros to the tax man every month in some shape or form.

relax carry on · 16-07-2018 1:07pm

tvjunki wrote: »

First you pay 8% USC on total rent if you are on the higher bracket. Then you pay 52% in prsi on the remainder after what few expenses you pay out. You can only deduct 80% of the interest element of your mortgage. This is based on if you are on the higher tax bracket.
You pay property tax which is not tax deductable.
So I think that is where owenbaloneygot is figures. This was mentioned IPOA about the amount of tax landlords pay.

So if you get a 1000euros you pay over 600euros to the tax man every month in some shape or form.

1000 euros a month minus expenses such as mortgage interest etc leaving say 800 taxable at marginal rate of 40% if you are already in the higher rate. USC is 8% for anything over 70044 otherwise it's most likely 4.75%. 4% PRSI also.

So rate should be 40% + 4.75% + 4% which is 48.75%. Max it can be is 40% + 8% + 4% which is 52%. This is applied to the taxable portion of the income not the gross.

tvjunki · 16-07-2018 1:54pm

USC is charged on the 1000 total rental income not the 800.

PRSI is charged on the income after the allowable expenses.

The landlord would have to register with rtb to be allowed to use the 80% interest element of their mortgage payment.

Some people would have other income apart from the rental income so may reach the 70k over two wages.
Then property tax is not an allowable expense.
It does add up.

relax carry on · 16-07-2018 2:22pm

tvjunki wrote: »

USC is charged on the 1000 total rental income not the 800.

PRSI is charged on the income after the allowable expenses.

The landlord would have to register with rtb to be allowed to use the 80% interest element of their mortgage payment.

Some people would have other income apart from the rental income so may reach the 70k over two wages.
Then property tax is not an allowable expense.
It does add up.

It does add up alright but not to 60%. And some people could be on the lower rate of PAYE not the higher. The property could be in joint ownership with the rental income expenses split 50/50 with one on the higher and one on the lower rate. The point is we don't know, which is why everyones situation is unique to them and a chat with an accountant from the outset is no harm.

USC should be charged after expenses but before capital allowances so charged on the 800 not the 1000 gross.

sk8board · 16-07-2018 4:09pm

(landlord here, full-time at the moment).

as others have pointed out, the tax %'s are unavoidable, so depending on your USC rate, you're paying 48-52% in tax. That's just a fact of life.

Personally, I reduce costs as much as possible:
- filing my own tax returns (using ROS it's far easier than you think). Good accountants are about €500.
- reducing the tax bill by claiming everything that's deductible. Again, its not complicated and for the purpose of this conversation, nearly everything is deductible except for LPT (which has been assumed by Noonan's Dept as deductible a few years ago, but was never enacted).
- don't use an agent, unless you really don't like the function of being a Landlord and really need to rent the place.
- most people have this irrational fear that their Tenant will be calling every week at 4am about the dishwasher. I've had 2 calls from 4 rented properties over the past 12 months (1 boiler issue, 1 oven issue).
- last year I had just 1 call from the 4 places - a €510 bill when Storm Doris caused some roof tile damage.

- having 1 place to rent is the worst position from an investment perspective. If you happen across a bad tenant (its not as apparent as folk would have you believe), you're down 100% of your income, while your costs remain the same.

So, should you do it? - ask yourself if you actually want to be a landlord, and if you do, there is money to be made if you do it right and treat it as an investment. If you're not interested in the investment yield %, then you're doomed to be disappointed. Mine is currently 6.25%, and I'm below market rates in all cases, but have great tenants.

otherwise, my suggestion is that you should take you money off the table and stay out of any investment market that you're not comfortable with, just like stocks, shares or anything else.

TheBoyConor · 16-07-2018 4:14pm

Don't do up the kitchen or floors. It's a landlords market so you don't need to. Plus the tenant might only wreck it.
Just replace I immediately before selling. But why would you? New kitchen fittings won't make much difference to the sale price, of it makes any difference at all.

And don't rent the property. You'll be screwed with tax and even more screwed if the tenants refuse to leave.

Air BnB it or sell it immediately.
Whatever you do don't become a landlord. It's awful.

ouxbbkqtswdfaw · 16-07-2018 5:33pm

TheBoyConor wrote:

And don't rent the property. You'll be screwed with tax and even more screwed if the tenants refuse to leave.

+1

GGTrek · 16-07-2018 7:13pm

Renting out just 1 self contained property in negative equity with mortgage to pay is just too much risk. Due to scarcity of housing overholding has become the national sport for tenants in Dublin. I have ten separate tenancies and overholding of a few months (still paying rent but delaying vacating the flat) is endemic in Dublin. I have a small sample but my average is almost 40% and half of these you have to take to the Rtb at huge effort. If you need to sell this will have a big impact on your sale.
Tax should not be your main concern. The regulatory risks are very high at the moment (read the thread about the new proposed legislation ) and your main enemy will be the Irish legislator.
In my opinion your best bet is not to give exclusive use to any tenant. Retain a room for yourself and you or a family member go to sleep there regularly. In this way you will retain full control of your property and if something bad happens due to legislation or due to the licensees you simply change the locks and say goodbye and give two fingers to the RTB.

Macmillan150 · 16-07-2018 7:24pm

Differing opinions there. I do appreciate all the view points. I’ll be honest, I’m pretty risk averse since being stung in the recession. When I get a bit of time, I’ll sit down and work through tax implications as that would be my main concern. If I can’t see a financial payoff fairly short term, I’ll try and sell for as much of my mortgage as possible. I’ll need to get a valuation to see where I really stand re: negative equity and selling costs etc.

Edgware · 16-07-2018 7:26pm

Dont bother with becoming a landlord. You will be a non paid tax collector.
I am selling off two one bed apartments at the moment and am available to benefit from a change in CGT so wont be paying any. Fed up collecting tax

17-07-2018 7:23am

The rule of thumb I use is that half of the rent will be profit and half of that will be what you get to keep.

17-07-2018 7:26am

Edgware wrote: »

am available to benefit from a change in CGT so wont be paying any.

What do you refer to here?

I believe CGT is what's keeping huge number of older rental properties from being put on the market.

beauf · 17-07-2018 7:56am

[Deleted User] wrote: »

The rule of thumb I use is that half of the rent will be profit and half of that will be what you get to keep.

Barring exceptional bills like over holding or a boiler or Windows etc.

beauf · 17-07-2018 7:59am

[Deleted User] wrote: »

What do you refer to here?

I believe CGT is what's keeping huge number of older rental properties from being put on the market.

That and they are appreciating just sitting there.

Jude13 · 17-07-2018 8:51am

We're thinking about a buy to let in Ireland (we're no resident expats) is it correct that the onus is on the tenant to set aside an amount to pay the tax out of the total rent?

Also if we had say my OH's brother live in a room (hes off to college) could we rent the other rooms as licensees?

Cheers, hope Im not highjacking

Fian · 17-07-2018 9:51am

Deleted User wrote: »

What do you refer to here?

I believe CGT is what's keeping huge number of older rental properties from being put on the market.

properties bought in teh years 2011 (or 2012?) to 2013 are CGT when sold if held for 4 years. Up to 7 years CGT free, depending on how long they were held, if held beyond 7 years you get a proportionate reduction.

so if held for 10 years you pay CGT on 30% of the gain - (10-7)/10

if held for 14 years you pay CGT on 50% of the gain - (14-7)/14

if held for 4-7 years you pay 0 CGT.

Only applies to properties bought during this period, period definitely finished end of 2013, not certain when it started tbh, few years previous to that when property market was absolutely moribund. Properties bought before this scheme was introduced do not benefit.

relax carry on · 17-07-2018 10:36am

Jude13 wrote: »

We're thinking about a buy to let in Ireland (we're no resident expats) is it correct that the onus is on the tenant to set aside an amount to pay the tax out of the total rent?

Also if we had say my OH's brother live in a room (hes off to college) could we rent the other rooms as licensees?

Cheers, hope Im not highjacking

Correct if you don't use an Irish based collection agent.

https://www.revenue.ie/en/property/rental-income/irish-rental-income/how-do-you-declare-your-rental-income.aspx

https://www.revenue.ie/en/tax-professionals/tdm/income-tax-capital-gains-tax-corporation-tax/part-45/45-01-04.pdf

Can't help with the second part.

GGTrek · 17-07-2018 11:04am

Fian wrote: »

Deleted User wrote: »

What do you refer to here?

I believe CGT is what's keeping huge number of older rental properties from being put on the market.

properties bought in teh years 2011 (or 2012?) to 2013 are CGT when sold if held for 4 years. Up to 7 years CGT free, depending on how long they were held, if held beyond 7 years you get a proportionate reduction.

so if held for 10 years you pay CGT on 30% of the gain - (10-7)/10

if held for 14 years you pay CGT on 50% of the gain - (14-7)/14

if held for 4-7 years you pay 0 CGT.

Only applies to properties bought during this period, period definitely finished end of 2013, not certain when it started tbh, few years previous to that when property market was absolutely moribund. Properties bought before this scheme was introduced do not benefit.

The purchase period was actually 2012 to 2014 all the rest is correct.

PierreLeCake · 17-07-2018 11:38am

A bit of advice to the OP. Renting is normally a long term business beacuse of the expense in getting started. You are also hoping for Capital Appreciation.
As advised by others the interest on your mortgage is allowable against Tax. So are things like Accountant fees, Mangement fees if its an apartment and agent fees if you choose to use one are deductable. You can claim Capital depreciation on furnishings but you can only claim 12.5% each year over an 8 year period. If you spent 5000 on things like bed's , cooker's, etc you would only be able to claim 12.5% of the 5000 each year against tax. Not a lot of use to you if you are only planning to rent for 2 years . You could only offset 25% of your expenditure over the two year period. I just picked 5000 as a random figure but you get the idea.Its money you have to spend upfront.
You will have to have a BER cert and register with the RTB. The trick is to spend as little as possible. I would n't use an agent unless absolutely neccessary. Thats a months rent down the drain.

If you end up with a tax liability you get hit with a double whammy the first year. Lets say you owe Revenue 4000 in tax after all allowable expenses They want the 4000 you owe them plus another 4000 in preliminary tax for the next year. You are paying tax on rent you have n't received.
Ask your accountant about this. It caught me out and I imagine it gets a lot of first time landlords.

If you decide to rent you will be inundated with people asking if you accept HAP. Check other threads about HAP and why its no friend of the landlord. You have to fill out extra paperwork (personally I think Landlords should charge for this), you need a Tax Clearance cert, you have to prove you own the property. You are dealing with councils who are slow and inefficient. You are paid in arrears. If there is a problem with the paperwork you won't get paid. People on HAP find it harder to find landlords willing to accept it so once they are in your property they won't be moving unless they can find someone else to accept it. You legally can;t discriminate against people on HAP so its a minefield for landlords.Your property will also have to meet HAP standards. This are extremly high standards that even council properties don't meet. Your property will only be inspected after the tenant has moved in. I don't know why Councils don't do pre inspections so a landlord knows in advance if his property is HAP worthy or how much he will have to spend to get it up to standard. HAP tenants pay a small amount of the rent to the council. If the tenant fails to pay the cpouncil stops all your rent until the issue is sorted out. The council won't talk to you by the way.

Another thing to bear in mind is do you have cash for emergencies.The washing breaks down or the Triton shower. No good landlord would keep a tenant waiting for things like these so you have to be in a position to be able to go out and buy these as soon as you know they are broken. Tax deductible expense of course but you have to fork out the cash there and then.

I hope I have n't terrified you too much but these are things you need to consider. Most tenancies run smoothly with minimum hassle but you have to be prepared for the worst case scenario. An overholding tenant could cause you to spiral into serious debt. Do the maths first with an Accountant who will advise if its worth your while for such a short time period.

Macmillan150 · 18-07-2018 1:00am

Ok. I did not know you had to pay tax a year ahead!!
You say not to waste money in an agent but if it’s tax deductible what is the drawback there?
The 8 years at 12.5 percent a year tax relief on capital expenditures? This is only if the property is ALREADY being rented? How long does it need to be rented before you could buy a new sofa or flooring and still be eligible for tax relief.

I don’t see the bank letting us keep apartment as well as having a second mortgage so it really would only be short term.

18-07-2018 7:16am

Macmillan150 wrote: »

I don’t see the bank letting us keep apartment as well as having a second mortgage so it really would only be short term.

You will probably need the banks permission anyway to rent the property, and if their calculation is that you can't have a second mortgage, they will hardly give you permission. And they may charge you more for the mortgage because of the higher risk.

If it is genuinely short term, then you would be much better to look at AirBnB as you take no risks with losing posession as might be the case with an overholding tenant.
Also if you plan on selling soon, restrict any money spent on the place to cosmetic touches. You would be unlikely to recoup any major expenditure on selling the house.

davindub · 18-07-2018 7:54am

Macmillan150 wrote: »

Ok. I did not know you had to pay tax a year ahead!!
You say not to waste money in an agent but if it’s tax deductible what is the drawback there?
The 8 years at 12.5 percent a year tax relief on capital expenditures? This is only if the property is ALREADY being rented? How long does it need to be rented before you could buy a new sofa or flooring and still be eligible for tax relief.

I don’t see the bank letting us keep apartment as well as having a second mortgage so it really would only be short term.

Your first tax return will be due october 19.

Pay 2018 tax balance.
Pay 90% of 2019 liability (or equal to 100% of 2018 balance).

As this happens in Oct 19 you are not paying tax a year ahead.if you are smart keep tax due as you collect rent, preferably put into best interest account you can get.

PierreLeCake · 19-07-2018 5:00pm

davindub wrote: »

Your first tax return will be due october 19.

Pay 2018 tax balance.
Pay 90% of 2019 liability (or equal to 100% of 2018 balance).

As this happens in Oct 19 you are not paying tax a year ahead.if you are smart keep tax due as you collect rent, preferably put into best interest account you can get.

Davindub is correct here. I chose my word poorly but for your first Tax return you will be writing a big cheque

PierreLeCake · 19-07-2018 10:05pm

Macmillan150 wrote: »

You say not to waste money in an agent but if it’s tax deductible what is the drawback there?
The 8 years at 12.5 percent a year tax relief on capital expenditures? This is only if the property is ALREADY being rented? How long does it need to be rented before you could buy a new sofa or flooring and still be eligible for tax relief.

I don’t see the bank letting us keep apartment as well as having a second mortgage so it really would only be short term.

You have to remember anything that is Tax deductible is still an expense for you. Here is a simple example.The figures won't match your reality but you will get the idea
Rent for the year = 12000
Tax Deductible Expenses = 6000
"Profit" = 6000 (12000-6000)
Tax @ 52% 0n 6000 = 3120
Between Tax and Expenses it has cost you 6000+3120 = 9120
Now add an Agenst fee. Let's say 1500 so your Tax Deductible Expenses are now 7500
Rent for year = 12000
Tax Deductible Expenses = 7500
Profit = 4500 (12000 - 7500)
Tax @ 52% 0n 4500 = 2340
Between Tax and Expenses it costs you 7500 + 2340 = 9840
So although the Agent is Tax Deductible you are 720 worse off in the long run. (9840 - 9120 = 720)
I'm not up todate on what Agenst charge but I seem to remember it was one months rent just to advertise your property, deal with enquiries , show the property and select the best tenant. They will then charge extra to Manage the property so if the tenanat has a problem they will ring the Agent who will have to ring you anyway.If you have a good Tenant and the property is in good condition you would probably only get about 4 phone calls a year anyway.I just think an Agent is an unneccessary expense and if they are not responsive to a tenant then it causes you hassle in the end.
Capital Expenses you can claim from Day 1 of the rental but they apportioned per month.
EG. Capital Expense = 6000.
You can claim 750 per year for 8 years.
However if you only start renting your property from the 1st of September then you will only have rented it for 4 months so in your first year you can only claim 4 months of Capital Expenses
I.E 750 / 12 = 62.5
62.5 * 4 = 250
You can't claim pre letting expenses for a first time rental so if you pay a guy to paint your apartment and hire cleaners to tidy it up prior to renting for the first time then its money down the drain I am afraid. If it was a long term rental these things would be worth doing but not in your case.
If you buy a new sofa that would come under Capital Expenditure so you could only claim 12.5% of its value over 8 years.
As advised before you need an Accountant to sit down and do the maths taking your particular circumstances.
Don't fall into the trap of thinking that if something is Tax Deductible you are somehow better off. You are not.

DrPhilG · 19-07-2018 11:48pm

I'm using an agent for a property. I'm not under any illusion that it's free because it's tax deductible but it makes it cheap enough to be worthwhile and save me the bother.

If they had just found me a tenant it would have cost 1 month's rent, €520. Yes I'm well away from Dublin, lol.

Because they are managing it, they only charge 1 weeks rent initially, then 10% per month. So the total for the year is €744.

Regardless of the tax write off, its only costing me about €20 a month more to have it managed than if I just used the agent to find and vet the tenant.

After the first year if the tenant is fine and staying, I could ditch the agent at that point and go it alone. But depending on the circumstances I may well let them continue.

ouxbbkqtswdfaw · 20-07-2018 12:22pm

Agent or no agent, all the responsibilities and problems come back to you.

Tax advice for first time landlord

Comments