Rental income tax query

The J Stands for Jay · 13-11-2019 11:40am

ted1 wrote: »

But you get nothing for a loss. Business get to carry losses to write off future tax bills

As do landlords.

The_Conductor · 13-11-2019 11:47am

McGaggs wrote: »

As do landlords.

Most landlords do not get to carry losses forward.
Keep in mind the preponderance of landlords with only 1 property- who make an annual Form 11 rental income declaration for tax purposes.

Profit or loss are immaterial for the vast bulk of these people- they pay PRSI and USC on the rental income before any determination of profit or loss- and income tax on net income.

Net income doesn't necessarily equate with a profit- its simply net income.

Also- the single largest cost allowable against rental income for the vast majority of landlords- is mortgage interest. I firmly believe that interest should be removed as an allowable cost across the board- for a number of reasons- including but not limited to acting as a brake on speculative investment (which is still happening, though to a lesser extent)- but also vulture funds lending their Irish arms funds at artificially high rates to shelter their Irish cashflow from the taxman.

The whole sector is a mess- and really needs to be properly tidied up.

ted1 · 13-11-2019 12:36pm

awec wrote: »

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.

We are talking when you sell it. Because the general gist of the whole thread is that you are left with your mortgage paid off and you are getting an asset

ted1 · 13-11-2019 12:37pm

McGaggs wrote: »

As do landlords.

Not if they sell at a lower price than they paid.

ted1 · 13-11-2019 12:38pm

The_Conductor wrote: »

Most landlords do not get to carry losses forward.
Keep in mind the preponderance of landlords with only 1 property- who make an annual Form 11 rental income declaration for tax purposes.
.

You can carry losses over year to year. But not if you dispose of the property

13-11-2019 1:17pm

Geuze wrote: »

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.

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.

The_Conductor · 13-11-2019 1:24pm

Madden Delightful Treason wrote: »

Don’t get how people think it’s in any way fair.

People think its fair because there is a particular sense of indignation towards viewing letting property as a business and/or allowing it run as any other business runs.

This indignation is flamed by a particular cohort- who use various political opportunities to meddle in the market- normally to the detriment of both tenants and landlords- neither tend to be a winner in this game.

There is a complete lack of any consideration of the bigger picture- and how cause and effect work.

awec · 13-11-2019 1:57pm

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.

This is an apples and oranges comparison.

Businesses can claim capital allowances on buildings as a cost of doing business.

Buying property and renting it out is an investment. You are investing in property, the same as someone might invest in the stock market. It is taxed as such. There are no special rules for landlords.

Trying to compare letting property with other businesses is trying to put square pegs in round holes.

3DataModem · 13-11-2019 2:00pm

Uriel. wrote: »

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.

How much has your mortgage reduced by?

awec · 13-11-2019 2:03pm

The_Conductor wrote: »

People think its fair because there is a particular sense of indignation towards viewing letting property as a business and/or allowing it run as any other business runs.

This indignation is flamed by a particular cohort- who use various political opportunities to meddle in the market- normally to the detriment of both tenants and landlords- neither tend to be a winner in this game.

There is a complete lack of any consideration of the bigger picture- and how cause and effect work.

There is indignation towards it because of the self-pity nonsense posted by landlords trying to make out like they are paupers being screwed over all the time.

Yea, they got the short end of the stick on some things, but they are not treated any differently to any other investor when it comes to tax, so give us all a break.

steamsey · 13-11-2019 2:11pm

Deleted User wrote: »

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.

I don't believe I mixed anything up. You do not pay tax on your rental profit. You pay tax on your net rental income. Below taken from revenue link - it couldn't be any clearer:

"Rental profit and losses
If your rental income is greater than your rental expenses, you make a rental profit. You calculate your rental profit on a yearly basis.

If your rental expenses are greater than your rental income, you make a rental loss.

You pay tax on your net rental income. This is the gross rental income less your total rental expenses and is at your highest rate of tax."

steamsey · 13-11-2019 2:13pm

The_Conductor wrote: »

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.
.

You are right on this of course but whether Revenue care about prelim tax for individuals is debatable. It is indeed a massive shock in year one when you pay 2 years tax at the same time. Anyone been hit with interest / penalties for late or non payment of prelim tax?

steamsey · 13-11-2019 2:17pm

ted1 wrote: »

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.

Be careful here. You can only include capital allowances that relate to fixture & fitting purchases made POST rental. If you buy a brand new apartment, fully kitted kitchen etc, you cannot write those off over 8 years @ 12.5% per year. They are disallowed pre-letting expenses. I've seen people fall foul of this.

ednwireland · 13-11-2019 2:26pm

steamsey wrote: »

You are right on this of course but whether Revenue care about prelim tax for individuals is debatable. It is indeed a massive shock in year one when you pay 2 years tax at the same time. Anyone been hit with interest / penalties for late or non payment of prelim tax?

never paid the right amount of prelim tax and never been questioned on it. i used to be self employed but now paye. the rental house hasnt turned a profit several years either as its an older house and theres always something to repair.

chimney needed to be replaced this year so another 2k gone, 5k to redo the tarmac last year etc etc

ted1 · 13-11-2019 2:57pm

awec wrote: »

but they are not treated any differently to any other investor when it comes to tax, so give us all a break.

What other investor has caps on his returns ?

The_Conductor · 13-11-2019 3:02pm

ted1 wrote: »

What other investor has caps on his returns ?

Not to mention the risks associated with the sector.

The_Conductor · 13-11-2019 3:09pm

awec wrote: »

they are not treated any differently to any other investor when it comes to tax, so give us all a break.

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.

mitresize5 · 13-11-2019 3:16pm

single property landlord here,

Its a cost every October alright but my view is taxes are taxes and need to be paid, if everyone paid their fair share, from the small market trader who only deals in cash to the large multi national then the countries finances would be in a far better place.

We'd then have all that nice stuff that civilized countries enjoy, like a functioning health service, smaller teacher/pupil ratio. But thats not the Irish way unfortunately

Anyway pontificating aside see it as an investment in your and your families future. Some day the mortgage will be paid and aside from any capital gains you will have a nice monthly income to supplement your retirement fund, put your kids through college etc ...

12 years into a buy to let mortgage the rent is finally greater than the mortgage, which is nice but leads to a greater tax bill every October!

riclad · 13-11-2019 3:23pm

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 .
we are in a housing crisis ,if the allowance on mortgage interest was gone they would be out of the business .
I think we should give any landlords who rent to people on welfare ,
single mothers 120 per cent tax credits on mortgage interest .
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.

DubCount · 13-11-2019 3:27pm

The_Conductor wrote: »

Not to mention the risks associated with the sector.

Not to mention legitimate business expenses such as LPT not being allowable against income tax.

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...……...

Rental income tax query

Comments