Rental Income tax calculation

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kelly123

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We're expecting our third child later this year and have to move from our apartment into a house with more space. We're going to rent the apartment for 1200 pm. Our mortgage is 900 per month and I'm trying to work out by much I will have to subsidise it each month after paying the tax on the rental income.
Thanks
 
A number of quick thoughts/ questions from a lLl who is finding it tougher and tougher to make money out of letting proeprty -along with almost every LL in this country.

1. Anything you are told could change depending on election.
2. You dont say if apt in negative equity but if not then sell it.
3. You don't say what your top tax rate is.

As you can read from so many threads there are many many warnings about letting your apt and it is worth going back and reading them.A lot of good avice.

You say your mortgage is 900 - it may be more if you tell the bank you're letting the place. The insurance would be more. Besides various fee PRTB, NPPR.(NPPR will definitely increase from 200 to 300? 500?), BER.

What is 900A MONTH today could easily work out to be 1.100 tomorrow .
And that's without interest rate increases which everyone expects the ECB to increase soon.

- Incidentally, the cost of interest may not be allowed against your rental income (at present only 75% is allowed, but who knows tomorrow?)

Look : to be blunt - you may be forking out well over 1.200 a month (I suspect more in 2012).

You hope to get 1200 but maybe nearly half of this will be lost in tax.

You could be subsidisng the place by 600 a month.
And if your tenants leave you may have a vacant period which will really hurt you.

- and don't forget, you pay for any repairs ,replacements. Or, if the tenants ruin anything you have to fight it out with them.

Your total loss could be 6.000- 10.000 a year, depending on future changes, vacant periods, repairs etc and thus you may consider whethe selling the apt is an option.
=========================

I have not heard many happy stories about people doing what you are considering.
And I admit I'm writing from the pessimistic worst case scenario.

Perhaps a more optimistic person may respond and tell you it's a good idea.
 
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I'm surprised nobody else responding to OPP's query. I feel I may have been too gloomy but then another thought struck me - how much is OP consdiring paying per month for the house she wants to rent ? 1.200 ? 1.500 ?
This would add another 15-18.000 on top of what she's subsidising the apartment.

Maybe worth seeing your lender to see if you can sell apt and buy house. Obviously you'll lose on ther apt -but best time to buy house at moment.

Any thoughts, OP ?
 
Am also surprised there have been no further replies to this, though I don't think Oldnick was being too gloomy - I would see it as a healthy dose of realism.

O/p: to have an idea of what rate of tax you would pay on the net rental income we'd need to know rate you pay now - if you are currently at 41% then you will have to pay that on the rental 'profit', plus PRSI and USC.

You say your mortgage repayment is currently €900 per month. If you rent out the property your lender may make you change to an investment rate mortgage (more expensive!). And only 75% of the mortgage interest is allowable as a tax deduction, not the full 'interest & capital' amount. In their election campaign Labour had proposed to reduce the 75% allowable interest to only 25%, so you never know how this will change in future.

You will also need to take out landlords insurance, register with the PRTB, pay the NPPR (2nd home tax, which Labour also proposed to double), pay for any repairs for your tenants, advertising fees, possibly pay for a managing agent, cover the mortgage during periods of vacancy... unfortunately I'm sure there is more!! Oh yeah, you also have to hope that you get good tenants.

You are allowed deductions for the landlords insurance, PRTB registration, repairs/renewals, agents/advertising fees. But in general, I don't envy you.

This is something I looked into for myself and it looks stressful!
 
conclusion - especially if Labour is given finance portfolio :-

Letting properties is increasingly a mugs game.

Please Enda ,if you get more than 175 seats, -pick up the phone to Shane Ross & co.
 
How can we respond when OP has given scant details. Important details about her mortgage and tax situation for example.
 
Hi all,

apologies about the late reply and many thanks for all of your comments.
To answer your questions: I currently pay 41% tax. We're hoping to rent a house further from the city for 1200 per month.

The apartment had been on the market for almost 2 years but we didn't get a single offer. It is now in negative equity and we can't afford to sell it at a loss. It's far too small for a family of 5 to live in so I believe our only option is to rent it out and find a house for the same rent.

I know this is far from an ideal situation for me and my family. We are not flush with cash. I appreciate the honest comments made but I don't think I have any choice but to rent the apartment, subsidise the mortgage and hopefully sell it as soon as I can.

These are my own calculations forecast for the 12 month lease. (As you can see I have estimated Landlord Insurance and Wear and Tear Allowance.)

Rental Income =14400

Tax Deductable Expenses:
75 % 0f Mortgage Interest = 2820
PRTB Registration= 90
NPPR Tax = 200
Property Management Fees=1700
Insurance = 200 (estimate)
Wear and Tear Allowance = 100 (estimate)

41% x (14400 - (2820 + 90 + 200 + 1700 + 200 + 100)) = 3808

14400-3808=10592

Mortgage Repayments = 10,800
Mortgage subsidy: 10800 - 10592 = 208









Thanks again
 
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I'm sure someone more analytical than me (Bronte's good at that) will examine the figures more carefully but I'm repeating my gloomy waffle...

The biggest problem that everyone ignores -and I certainly did despite my advanced age and supposed learning - is that things may change

e.g.

- NPPR will increase to 300 (labour wants 500)
- Far worse, interest relief presently 75% may/will decrease to maybe 50%. 25% -who knows. But it's unliklely to stay at 75%
- Interest rates generally will increase ,if not this year certainly by next year.
- your property may already ahve a BER cert -if not you need to get one if renting/selling.

I haven't even looked at the mortgage aspect. Will bank charge you the same mortgage if you're renting out the place.? It depends on whether you tell them.I can't advise on that. I'm sure others will.

Your present figures may be fine but are useless as they are based on today's soon-to-be-changed basis.

Do the figures again based on a few worst case scenarios, which could result in you subsidsing the apt by, as I orginally said, up to 6k a year.
You MUST cost in an empty month every couple of years -just in case.

What's really crazy is that whilst you will pay tax on letting (renting out) your apt, you'll get very little back whilst renting elsewhere. Tax relief for people renting is diminishing,soon to go.

So sorry, Kelly, to be gloomy...

Can someone else please contradict me as I feel bad at what i'm saying ...????
 
kelly123 said:
Tax Deductable Expenses:
75 % 0f Mortgage Interest = 2820
PRTB Registration= 90
NPPR Tax = 200
Property Management Fees=1700
Insurance = 200 (estimate)
Wear and Tear Allowance = 100 (estimate)

41% x (14400 - (2820 + 90 + 200 + 1700 + 200 + 100)) = 3808

14400-3808=10592

Mortgage Repayments = 10,800
Mortgage subsidy: 10800 - 10592 = 208
Click to expand...

Hi Kelly - you will be paying tax (by your calculations) on €10592, which at 41% would be approx. €4300. The fact that there is €208 between mortgage and taxable income is irrelevant.

I think there is a perception out there that you pay tax on the difference between mortgage payments and rental income if the rental income is higher (i.e you make a profit) and you don't pay tax if you make a loss. Unfortunately that is not the case.
 
In relation to tax deductable expenses, is furniture bought for a rented property (eg tables & cars. sofa etc) written off one as one lump sum for that particular tax year, or is it accounted for under wear & tear over 8 years??

Cheers
 
I'm with oldnick on this.
Your calculations are for full occupation, mortgage interest as is, no extra expenditure. USC would be 7% on the "profit" for one thing. You have to assume things will go wrong, or get harder, that's life now.
You might say you have "no option" but to move, but as someone who has lived in a stable for six months I know there is another option - make the best of what you have.
Nobody seems to understand the simple " can't afford it".
 
you're also not taking account of the fact that you will have to pay for Mgt Fees, Insurance, PRTB, NPPR out of your own pocket.

PRTB Registration= 90
NPPR Tax = 200
Property Management Fees=1700
Insurance = 200 (estimate)

plus you will have to pay PRSI, Income Levy, USC i think on the Gross Rental Income.

So your annual outgoings would be (per your figures):
Mortgage 10,800
Tax 3,808
Expenses listed above 2,190
PRSI, IncomeLevy, USC ???
 
I have recently moved to a new house, and rented out my 1st property, and although my figures would not be as big as the OPs, I would much preferred to have got a buyer than having to rent it out.

I can only see being a landlord as a costly business in the coming years.
 
Hi,
One other consideration is that NPPR (currently 200 Euro) is not allowable as an expenses against rental income.
 
Re furnature

Hello, re furnature, this is to be deducted over 8 years. The money to be deducted is the resale value and not what you bought it for. You can of course set an ambitous resale value :)
 
Calculator

I have made an attempt to put together a Rental Income Cost Calculator for anybody, like me, who is trying to work out the true cost of renting out your apartment.

I have used the figures given above and done some investigation on the Revenue site to fill in some gaps. It is a first attempt and in the spirit of open source I encourage anyone to review and correct any mistakes I may have made.

I cannot attach a file to the post so PM me if you would like a copy.
 
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