Help with setting rent and tax issues

I have an apartment in Dublin which is in a lot of negative equity. I moved out this year and am renting out two rooms. I will need to become tax compliant this year. My apartment cost 330,000 and is only worth 180,000 max.
My question is this: My current tenants are friends of mine and are extremely good tenants. I am receiving 950 in rent plus 69 in TRS and my mortage (tracker) is 890 p/m. I also pay 140 p/m in management fees and life assurance 16pm and insurance of 20pm. So basically making a loss/ My apartment is in a great location in Dublin and rents at the moment are reaching 1200/1250pm in the area. if I were to up the rent and possibly get new tenants would I be any better off as I know Id have a huge tax bill every year. Would the surplus rent cover my tax bill? Apologies if im not making sense..this is my 1st post!!

The tax bill is a percentage of your rental profit. It will only be huge if your profit is huge.

You are required to cancel your TRS within a month of it ceasing to be your PPR. Also, you need to register all tenancies with the PRTB in order to deduct 75% of your mortgage interest for income tax purposes. Principal mortgage payments and LPT are non-deductible.

The Revenue has some helpful guidance on their website regarding the taxation of rental properties.

Best advice I can offer is to keep ALL receipts and bank statements!

Thanks for all the replies! Just wondering would I be better off leaving the rent low with my trustworthy tenants or looking for the market value with new tenants? Looks like ill be paying a large tax bill if I were to increase the rent. Is this correct? Also if I decided to overpay my mortgage would that have any impact on my tax bill? Any advice greatly appreciated..

[broken link removed] is a link to Revenue’s website.

See IT70 – Guide to Rental Income, which explains how rental income is assessed and the deductions that can be claimed in arriving at the rental profit.

I suspect you will have a significant tax liability as things stand unless you regularise your position. You really need to read up on the legal obligations of landlords and the taxation of rental income.

Sarenco said:

I suspect you will have a significant tax liability as things stand unless you regularise your position. You really need to read up on the legal obligations of landlords and the taxation of rental income.

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I am worried now Sarenco! Ive just rented out my property since the end of January so just trying to get things in order. Read through all the Revenue information. Really helpful thanks. I have registered with the PrTB.

Assuming you achieved the highest rent - €1,250 pm or €15,000 pa, and assuming you pay the higher rates of income tax and USC and 4% PRSI, the very most your tax liability could be is €7,650 pa.

However, that is before any admissible deductions against the rent, such as 75% of your mortgage interest, wear & tear on fixtures & fittings, repairs, etc.

Muffintop said:

Looks like ill be paying a large tax bill if I were to increase the rent. Is this correct?

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Every extra €100 you take in rent will cost you an absolute max of €51 in tax. From a tax perspective, there's absolutely no reason not to maximize your rental income.

If you're looking for a financial excuse to keep your friends in situ, just think about risk. Whenever you take new tenants, there is a risk they that they will wreck the place, open a brothel, or just decide not to pay. It could take two years and thousands to get them legally and physically out of the place, and make it rentable again. With that in mind, holding on to reliable trustworthy tenants may justify some kind of discount. Probably not €300 per month mind.

Muffintop said:

I am worried now Sarenco! Ive just rented out my property since the end of January so just trying to get things in order. Read through all the Revenue information. Really helpful thanks. I have registered with the PrTB.

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Sorry Muffintop, I really didn't mean to worry you unnecessarily - I've no doubt that you are just trying to get things in order.

As Sophrosyne points out the key is to understand what you can deduct for tax purposes and to make sure you make the necessary registrations and keep all necessary backup documentation. It's really not hugely complicated but you will definitely kick yourself in October 2016 (when you have to make a return to Revenue) if you can't find an invoice or statement to justify a deduction. Keep everything!

Thank you everyone! By my rough calculations ill need to charge the higher rent in order to save monthly for my tax bill in October 16. Does anyone know roughly how much Property Management Companies charge in Dublin to look after tenants? I see this is deductible from tax bill.