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More landlords to sell up over taxes and cost of letting property

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Comments

  • #32
    [Deleted User]
    Posts: 0 ✭ [Deleted User]


    gaius c wrote: »
    Are you having a laugh? Capital repayments should never be an allowable business expense.

    Why shouldn't they, they are an expense in other areas of business. It's called capital expenses and businesses have allowances when they buy or build a premises etc.

    Equity should not come into it either. A LL is operating a business, buying the premises should be a deductible (in full) expense.


  • #33
    gaius c
    Registered Users Posts: 3,528 ✭✭✭gaius c


    Magnolia Enough Typographer wrote: »
    Why shouldn't they, they are an expense and They are in other areas of business. It's call capital expenses and businesses have allowances when they buy or build a premises etc.

    Think about what you are advocating. You want the tax on a share dividend to be offset by the cost of actually acquiring the shares.

    So if you had shares yielding 5% before tax, you'd pay no tax whatsoever on dividends for approx 40 years!

    Trying to have your cake and eat it too doesn't even begin to describe this.


  • #34
    khamilto
    Closed Accounts Posts: 221 ✭✭khamilto


    Magnolia Enough Typographer wrote: »
    Why shouldn't they, they are an expense in other areas of business. It's call capital expenses and businesses have allowances when they buy or build a premises etc.

    Equity should not come into it either. A LL is operating a business, buying the premises should be a deductible (in full) expense.

    It is nowhere near as simple as you make out. Indeed, your post is essentially untrue. Please accept the information you were given - or at least, research it further to satisfy yourself as to how true or not it is.


  • #35
    johnnyskeleton
    Moderators, Entertainment Moderators, Politics Moderators Posts: 14,465 Mod ✭✭✭✭johnnyskeleton


    vandriver wrote: »
    How are you defining 'making a profit'?

    Rental Income - 12,000

    Mortgage interest - 10,000
    % mortgage interest that can be written off - 7,500
    Managment and other expenses €3,000

    Income - 12k, overall expenses 3k net loss 1k
    On the tax side, income 12k allowable expenses 10.5k.

    So you can make a loss of a grand per year on the income/expenditure front and still pay income tax on 1.5k.

    Obviously investment in property is a long term matter and some level of capital appreciation, CGT is to be factored in as well.


  • #36
    aido79
    Moderators, Regional Abroad Moderators Posts: 5,374 Mod ✭✭✭✭aido79


    Maybe the government should follow Australian model of allowing landlords to have the option of negatively gearing investment properties. It's not a perfect solution but it allows landlords to offset losses against their other incomes so might be what's needed to keep landlords leaving the market.

    https://en.m.wikipedia.org/wiki/Negative_gearing


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  • #37
    khamilto
    Closed Accounts Posts: 221 ✭✭khamilto


    johnnyskeleton wrote: »
    Rental Income - 12,000

    Mortgage interest - 10,000
    % mortgage interest that can be written off - 7,500
    Managment and other expenses €3,000

    Income - 12k, overall expenses 3k net loss 1k
    On the tax side, income 12k allowable expenses 10.5k.

    So you can make a loss of a grand per year on the income/expenditure front and still pay income tax on 1.5k.

    Obviously investment in property is a long term matter and some level of capital appreciation, CGT is to be factored in as well.
    You're making the mistake of treating the landlord as if his only income was the rental property. Clearly, if the landlord had an overall negative income, he would not be liable for income taxes. Just as he can't offset all medical expenses against income, he can't offset all interest expenses.


    Besides, you cherry picked an example.

    Interest of €10,000 suggests a mortgage of somewhere between ~€320,000 - €420,000 depending on a 30 year mortgage under 10 years old.

    Rent of €12,000 suggests a yield of 2.6% to 3.4%. 5% is generally considered a very minimum.


  • #38
    vandriver
    Registered Users Posts: 3,458 ✭✭✭vandriver


    khamilto wrote: »
    You're making the mistake of treating the landlord as if his only income was the rental property. Clearly, if the landlord had an overall negative income, he would not be liable for income taxes. Just as he can't offset all medical expenses against income, he can't offset all interest expenses.


    Besides, you cherry picked an example.

    Interest of €10,000 suggests a mortgage of somewhere between ~€320,000 - €420,000 depending on a 30 year mortgage under 10 years old.

    Rent of €12,000 suggests a yield of 2.6% to 3.4%. 5% is generally considered a very minimum.
    The Irish Times example is of someone who bought a 350k apartment in '05.On a cheap tracker the interest on this mortgage would be 2-300 a month,while charging 1400 a month.This is a much more realistic scenario.


  • #39
    [Deleted User]
    Posts: 0 ✭ [Deleted User]


    gaius c wrote: »
    Think about what you are advocating. You want the tax on a share dividend to be offset by the cost of actually acquiring the shares.

    So if you had shares yielding 5% before tax, you'd pay no tax whatsoever on dividends for approx 40 years!

    Trying to have your cake and eat it too doesn't even begin to describe this.

    We built a new shed on the farm, we write off a considerable amount of the cost of building it every year against a combination of farm income and off-farm PAYE income. Over a number of years it will cost a fraction of the initial outlay due to the tax being written off, VAT we are allowed to reclaim on buildings (even when not VAT registered) etc.
    khamilto wrote: »
    It is nowhere near as simple as you make out. Indeed, your post is essentially untrue. Please accept the information you were given - or at least, research it further to satisfy yourself as to how true or not it is.

    What have I said that's untrue.


  • #40
    riclad
    Registered Users Posts: 8,184 ✭✭✭riclad


    I,M not a tax expert ,but i think your income as a landlord is treated separately from your income from say working in a factory,shop .
    You are taxed on rental income minus all tax credits ,expense,s .
    SO since they ignore capital repayments, and you can only claim for
    75 per cent of interest on the loan ,its easy to end up paying tax even though you are not making any Real profit on the rental income.
    Most landlords would need a full time job ,in order to get a mortgage to buy the rental property anyway.
    IF the governmnet want more rental propertys on the market they will have to do something,
    The logical thing to do is to provide more tax credits to attract potential investors
    landlords into the rental market.
    Many countrys provide extra tax credits in order to attract tech startups ,or
    film makers .
    There could be extra tax credits for landlords who rent to parents with 1 or more children .
    Rather than familys living in hotels ,which is not an ideal situation .


  • #41
    khamilto
    Closed Accounts Posts: 221 ✭✭khamilto


    Magnolia Enough Typographer wrote: »
    We built a new shed on the farm, we write off a considerable amount of the cost of building it every year against a combination of farm income and off-farm PAYE income. Over a number of years it will cost a fraction of the initial outlay due to the tax being written off, VAT we are allowed to reclaim on buildings (even when not VAT registered) etc.



    What have I said that's untrue.
    I don't think the term making a profit is open to interpretation.
    It is open to interpretation and diverges widely depending individual characteristics.
    If after paying the mortgage and all other costs associated with the rental property including tax on the rent and he has made money then he is making a profit.
    Loan principal is not included in profit & loss account for businesses.
    A LL should really only be paying tax on the actual profit if there is any.
    There is no such thing as 'actual' profit and 'unactual' profit.
    I know only 75% of mortgage interest is allowed as an expense. The point I was making that in order to make the system fair a LL should be allowed to deduct his entire mortgage payment from the rent (along with other allowed expenses) in order to arrive at his taxable rental income.
    That is not how other income or businesses are treated.
    the money the LL is actually earning and is put away in a savings account not paid out on a mortgage or other expenses.
    The investment is the property & (if applicable) the net profit of renting out the property. Not just rent.
    We built a new shed on the farm
    Industrial property is treated differently. I suggest, yet again, that you consult google to verify this. Even better, research the content of your posts BEFORE posting them, not after.

    Indeed, I'm unaware of a single thing you have posted about the tax treatment of landlords/businesses thus far that is actually correct.


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  • #42
    [Deleted User]
    Posts: 0 ✭ [Deleted User]


    khamilto wrote: »
    It is open to interpretation and diverges widely depending individual characteristics.


    Loan principal is not included in profit & loss account for businesses.


    There is no such thing as 'actual' profit and 'unactual' profit.


    That is not how other income or businesses are treated.


    The investment is the property & (if applicable) the net profit of renting out the property. Not just rent.


    Industrial property is treated differently. I suggest, yet again, that you consult google to verify this. Even better, research the content of your posts BEFORE posting them, not after.

    Indeed, I'm unaware of a single thing you have posted about the tax treatment of landlords/businesses thus far that is actually correct.

    You appear to be having severe difficulty understanding what I am trying to say even though its fairly straight forward.

    I know exactly how LLs are taxed and how it works, do you understand that? I am trying to suggest it should be changed to a fairer system.
    khamilto wrote: »
    Industrial property is treated differently. I suggest, yet again, that you consult google to verify this. Even better, research the content of your posts BEFORE posting them, not after.

    You should probably learn how to read before posting bull about me needing to do research.

    I was pointing out how in other areas of business that a large amount of captial outlay can be written off against tax and that it should be the same for LL.

    I have said nothing wrong in my posts, you are unable to distinguish the parts of my post where I'm making suggestions of how it should work for LLs compared to how the system currently works.


  • #43
    khamilto
    Closed Accounts Posts: 221 ✭✭khamilto


    Magnolia Enough Typographer wrote: »
    You appear to be having severe difficulty understanding what I am trying to say even though its fairly straight forward.

    I know exactly how LLs are taxed and how it works, do you understand that? I am trying to suggest it should be changed to a fairer system.



    You should probably learn how to read before posting bull about me needing to do research.

    I was pointing out how in other areas of business that a large amount of captial outlay can be written off against tax and that it should be the same for LL.

    I have said nothing wrong in my posts, you are unable to distinguish the parts of my post where I'm making suggestions of how it should work for LLs compared to how the system currently works.
    Head in the sand. If you have no interest in actual debate or being open to the potential of being wrong (which others as well as myself have clearly and categorically demonstrated), I don't understand why you are posting in a discussion forum.

    Industrial property specifically is treated differently for tax purposes. You are using this as a carte blanche to show that LLs are being treated wrongly by not being allowed tax relief (or depreciation) on a residential investment property. Industrial property /=/ residential property. Industrial property /=/ commercial property. All have different tax regimes.

    You claim that the concept of profit is simple, obvious and your definition.

    You ignore that loan principal is never included in profit & loss accounts.

    You ignore that property in and of itself is an asset.

    You ignore anything that contravenes your previously help opinion.


  • #44
    earlytobed
    Registered Users Posts: 451 ✭✭earlytobed


    I am selling my BTL next year. Yahoo!!
    Bought in 2004
    Rent doesn't come near the Mortgage payment.
    Would have been better off putting the cash I put into it over the years in the credit union... Not looking for sympathy, investments can go either way.
    No more tax returns, poor mouth tenants, LPT, PRTB.
    Happy days:)


  • #45
    gizmo555
    Closed Accounts Posts: 2,948 ✭✭✭gizmo555


    khamilto wrote: »
    It also isn't a pretty straight forward concept, there has long been a movement arguing that asset appreciation should be taxed when it occurs, not when the appreciation is realised via disposal of it. Almost every other form of income is taxed immediately.


    The reason for this is very simple. It's not an actual gain until it is realised.


  • #46
    khamilto
    Closed Accounts Posts: 221 ✭✭khamilto


    gizmo555 wrote: »
    The reason for this is very simple. It's not an actual gain until it is realised.
    I never stated otherwise.

    However, some tax regimes do consider appreciation to be a taxable gain - and the OECD model allows for this (though it's flawed due to some broad language).
    In the US, the Economic Recovery Tax Act of 1981 removed the realization requirement for commodities future contracts. It is argued by some academics that either a mark-to-market or disposition system of taxing capital appreciation would be fairer and more equitable.

    Would you agree that losses are booked before they are realized, e.g. depreciation?


  • #47
    outsidein98
    Registered Users Posts: 50 ✭✭outsidein98


    You can argue it any way like, score points and win the sophistry game all you like but in reality like most accidental landlords my wife and I lose money on the house we rent out. Like most people in the same boat we'll sell up as soon as the sale price can pay off the remaining mortgage. We will never make a profit. Yet we're hit at the highest rate of tax for the rental income. That's partly why there's a shortage of private rental property. Now the government is trying to make it harder for people like us.
    That's the reality we face.


  • #48
    GUIGuy
    Registered Users Posts: 246 ✭✭GUIGuy


    khamilto wrote: »
    You ignore that property in and of itself is an asset.

    Sorry but he's not at all. You've referenced it a few times but didn't give any weight to the fact that the capital will also be taxed if the owner sells it and realises the cash value.
    So the rent it's taxed as income and the capital under capital gains.

    I guess what you're 'trying' to say is that if landlords were to be allowed offset 100% of their expenses (like most businesses can) then it would be unfairly lucrative. If that's it then I agree wholeheartedly.

    However the current situation is obviously harsh enough that most want to leave and there must be farer ways of taxing this accumulated wealth rather treating it as income. Many landlords are making cash losses but its being treated as a taxable profit.


  • #49
    khamilto
    Closed Accounts Posts: 221 ✭✭khamilto


    GUIGuy wrote: »
    Sorry but he's not at all. You've referenced it a few times but left out the fact that the capital will also be taxed if the owner sells it and realises the cash value.
    So the rent it's taxed as income and the capital as capital gains.
    He wanted the capital payments to be treated as an expense. You seem to have missed that. There is a reason most businesses rent rather than buy and why leasebacks are so popular (well, becoming such in Ireland).


  • #50
    handlemaster
    Registered Users Posts: 6,003 ✭✭✭handlemaster


    earlytobed wrote: »
    I am selling my BTL next year. Yahoo!!
    Bought in 2004
    Rent doesn't come near the Mortgage payment.
    Would have been better off putting the cash I put into it over the years in the credit union... Not looking for sympathy, investments can go either way.
    No more tax returns, poor mouth tenants, LPT, PRTB.
    Happy days:)

    There are some on here who cant quiet get their heads around that . The fact you dont actually end up with anything at the end of the year.


  • #51
    [Deleted User]
    Posts: 0 ✭ [Deleted User]


    khamilto wrote: »
    He wanted the capital payments to be treated as an expense.

    Which they are (to a certain degree anyway) in many areas of business as they can write off capital expenditure (a percentage of the capital payment for the asset) against their tax bill.


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  • #52
    _Brian
    Registered Users Posts: 18,473 ✭✭✭✭_Brian


    Even here in Cavan far from the pressures if the Dublin market the drop in rental numbers is obvious.
    Many landlords have gotten out and the properties have moved. Into private ownership.
    Locally to me there families just can't get properties to rent and it is driving up rent levels.

    But even with increased rent levels landlords are not adding additional properties to their books.

    If rental was again allowed to be a profitable business then there would again be investor purchases, more properties on the market would ease rent pressures.


  • #53
    gizmo555
    Closed Accounts Posts: 2,948 ✭✭✭gizmo555


    khamilto wrote: »
    Would you agree that losses are booked before they are realized, e.g. depreciation?

    Depreciation is not the same thing as a loss. Depreciation is recognising the decline in value of an asset as it is "used up" in whatever way is applicable. For example, in rental accommodation, furniture is depreciated at 1/8th of the purchase cost per annum, recognising that it's reasonable to expect to replace a three piece suite every eight years through normal wear and tear. Or cars lose value as they gets older and their mileage increases.

    Not all assets are depreciating - gold, for example. It may go up or down in value, but it doesn't depreciate in the above sense.


  • #54
    gaius c
    Registered Users Posts: 3,528 ✭✭✭gaius c


    outsidein98 wrote: »
    You can argue it any way like, score points and win the sophistry game all you like but in reality like most accidental landlords my wife and I lose money on the house we rent out. Like most people in the same boat we'll sell up as soon as the sale price can pay off the remaining mortgage. We will never make a profit. Yet we're hit at the highest rate of tax for the rental income. That's partly why there's a shortage of private rental property. Now the government is trying to make it harder for people like us.
    That's the reality we face.

    It doesn't really tally with the rest of your post at all. You're not doing great out of your purchase, which is unfortunate for you but your property is available to rent and when you sell it, somebody else will buy it and live in it.

    The more former rentals that are for sale, the more people that will be able to exit the rental market and buy their own house.


  • #55
    gaius c
    Registered Users Posts: 3,528 ✭✭✭gaius c


    _Brian wrote: »
    Even here in Cavan far from the pressures if the Dublin market the drop in rental numbers is obvious.
    Many landlords have gotten out and the properties have moved. Into private ownership.
    Locally to me there families just can't get properties to rent and it is driving up rent levels.

    But even with increased rent levels landlords are not adding additional properties to their books.

    If rental was again allowed to be a profitable business then there would again be investor purchases, more properties on the market would ease rent pressures.

    And house prices would go up as home buyers have to compete with more investors armed with tax advantages for limited stock.


  • #56
    RainyDay
    Closed Accounts Posts: 6,925 ✭✭✭RainyDay


    Magnolia Enough Typographer wrote: »
    I don't think the term making a profit is open to interpretation. It's a pretty straight forward concept.

    If after paying the mortgage and all other costs associated with the rental property including tax on the rent and he has made money then he is making a profit.

    A LL should really only be paying tax on the actual profit if there is any. So rent minus 100% of the yearly mortgage (interest and capital) along with all other expenses.
    As others have pointed out, the mortgage principal is not a cost of doing business. You're just transferring your own money from one account to another account. So instead of having €500 pm in your current or savings account, you are reducing the debt on your mortgage by €500pm and increasing your equity in the property by €500pm. Why should the taxpayer subsidise this transfer of funds?
    outsidein98 wrote: »
    You can argue it any way like, score points and win the sophistry game all you like but in reality like most accidental landlords my wife and I lose money on the house we rent out. Like most people in the same boat we'll sell up as soon as the sale price can pay off the remaining mortgage. We will never make a profit. Yet we're hit at the highest rate of tax for the rental income. That's partly why there's a shortage of private rental property. Now the government is trying to make it harder for people like us.
    That's the reality we face.
    If you sell, someone will buy - either to live in it or to rent it out. The property doesn't fall off the face of the earth when you sell.
    _Brian wrote: »
    Even here in Cavan far from the pressures if the Dublin market the drop in rental numbers is obvious.
    Many landlords have gotten out and the properties have moved. Into private ownership.
    Locally to me there families just can't get properties to rent and it is driving up rent levels.

    But even with increased rent levels landlords are not adding additional properties to their books.

    If rental was again allowed to be a profitable business then there would again be investor purchases, more properties on the market would ease rent pressures.
    And the increased investor purchases would push up the prices for ordinary families trying to buy a house to live in.


  • #57
    gaius c
    Registered Users Posts: 3,528 ✭✭✭gaius c


    earlytobed wrote: »
    I am selling my BTL next year. Yahoo!!
    Bought in 2004
    Rent doesn't come near the Mortgage payment.
    Would have been better off putting the cash I put into it over the years in the credit union... Not looking for sympathy, investments can go either way.
    No more tax returns, poor mouth tenants, LPT, PRTB.
    Happy days:)

    Good luck with it. Sometimes knowing when to cut your losses is the hardest decision of all.


  • #58
    khamilto
    Closed Accounts Posts: 221 ✭✭khamilto


    gizmo555 wrote: »
    Depreciation is not the same thing as a loss. Depreciation is recognising the decline in value of an asset as it is "used up" in whatever way is applicable. For example, in rental accommodation, furniture is depreciated at 1/8th of the purchase cost per annum, recognising that it's reasonable to expect to replace a three piece suite every eight years through normal wear and tear. Or cars lose value as they gets older and their mileage increases.

    Not all assets are depreciating - gold, for example. It may go up or down in value, but it doesn't depreciate in the above sense.

    There would be no need to book depreciation unless a loss is eventually expected - hence why we have depreciation recapture as outlined in s288 of the 1997 Taxes Consolidation Act.


    I'm not sure why you stated "not all assets are depreciating" when we are talking about the tax treatment of an appreciating asset. That would be a given. Indeed, your entire post seems to be an oxymoron.


  • #59
    borderlinemeath
    Registered Users Posts: 5,339 ✭✭✭borderlinemeath


    gaius c wrote: »
    Good luck with it. Sometimes knowing when to cut your losses is the hardest decision of all.

    He'll need luck. Thanks to the latest measures if the house doesn't sell he could be fined for trying.:mad:


  • #60
    rossmores
    Registered Users Posts: 118 ✭✭rossmores


    without doing sums the high tax and extra regs are driving LLs out i am not referring to the article as I am in the business i know and I am reducing my supply not sure if I will sell or change to short time lets
    there is no more extra supply coming on stream and if there was what investor would want them but their are more renters/buyers coming into the market all the time making that pool of available properties even less


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  • #61
    mickoneill31
    Registered Users Posts: 855 ✭✭✭mickoneill31


    RainyDay wrote: »
    If you sell, someone will buy - either to live in it or to rent it out. The property doesn't fall off the face of the earth when you sell.

    Are there any statistics as to how many houses are being bought to be rented out? I'd guess that the percentage is small but that's not based on anything. Is this info collected by any agency?


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