Tax etc on rental income

W

waxy

Guest
Myself and my wife and kid live in a one bed apartment bought at the top of the market in 2007 for 300k. Worth around half that now. We want to move out and rent a two or three bed place.

We were first time buyers at the time. Mortgage is a tracker and is currently around 950 pm with 280k left on it. Have looked at rents for similar apartments and they are about 850pm. So my rent would be less than my mortgage and with further ECB rate rises that gap is only likely to get bigger. The rent we will pay in the new place is likely to be around 1000pm so a big net loss already before we even start.

If we were to move out and rent it what taxes etc would we have to pay and what benefits would I lose (mortgage interest relief etc)?
In other words how much would it cost me per year as well as the extra 100 per month difference between the rent I would get and the mortgage. Pay management fee of around 1500 per year as well as life insurance home insurance etc.

I know little or zero about any of this (including what exactly 'tax deductible' means) so a real idiot's guide to the whole thing would be very helpful!

Failing that who would be the best type of person to go to to get a full explanation of all this would entail, costs and otherwise. Either free or fee based.

Thanks for any help!
 
If you rent out your apartment at 850 per month, The expenses you will have are:
Non Principal private residency tax €200 per year
Private residency tenancy board €70 each time you change the tenants.
BER energy rating €150 -€200 ( this rating lasts for 10 years)
Insurance (This is a different type of policy for rental properties)
Apartment management Fees
General repairs and upkeep.

The expenses you can claim against income tax are:
The interest portion only of your mortgage, repairs, upkeep, BER, PRTB,
Management fees, Insurance.
The expenses you cannot claim against income tax:
NPPR Tax, The repayment portion of you mortgage.

Income tax will be due on the balance.

The mortgage may have interest relief already deducted for you principal private residence, if so your monthly repayments will increase by that amount.
 
Brown said:
If you rent out your apartment at 850 per month, The expenses you will have are:
Non Principal private residency tax €200 per year
Private residency tenancy board €70 each time you change the tenants.
BER energy rating €150 -€200 ( this rating lasts for 10 years)
Insurance (This is a different type of policy for rental properties)
Apartment management Fees
General repairs and upkeep.

The expenses you can claim against income tax are:
The interest portion only of your mortgage, repairs, upkeep, BER, PRTB,
Management fees, Insurance.
The expenses you cannot claim against income tax:
NPPR Tax, The repayment portion of you mortgage.

Income tax will be due on the balance.

The mortgage may have interest relief already deducted for you principal private residence, if so your monthly repayments will increase by that amount.
Click to expand...

Thanks very much for that.

Sorry for the ignorance but what exactly does 'claim against income tax mean'. Also how do you prove expense on repairs upkeep etc?

Just looking at the figures I've given above could anyone give a ball park figure of how much extra I'd have to pay out. would it be 2k, 5k, 10k genuinely have no idea?

Could anyone recommend a good financial advisor to go to have this fully costed and specifically broken down what it would cost me per year?

Also is there any proposals to deal with people in my situation who are stuck in one beds in massive negative equity and a growing family. Obviously my own fault etc etc and I'm generally not whinging but surely I am different from someone with a second property renting out to earn a bit of income or a pension pot. I'd love to sell my place and go renting elsewhere but simply can't because of negative equity.
 
Waxy - this is not meant to be rude but ...
.. there are several posts in this thread on property investment that will answer many of your questions.
There are other sites such as irishlandlord.com. Also the Revenue.ie have a guide to rental income online

If anything is still unclear then this is a great thread on which to ask. Also, regarding an advisor -an accountant probably - thats not a bad idea, but they cost money so it's best to acquire some free knowledge first before paying for his advice.

However as its raining and I cant garden at the moment, I'll give a very rough quick breakdown...

your new rental home cost 12k - but you are getting 10k rental incomefrom your own property.

After you have paid the costs listed by Brown,including a heavier-than-before insurance you may end up with 7k/8k -and thats assuming tenants are always paying or dont wreck the place.

You can -at present- claim 75 % of the interest that you Pay on the loan. I dont know what interest you pay, but let's say its 6k, so you can claim 4.5K against tax so, really, your taxable income is only 3/4k - you will pax tax of between 1k to 2k depending on your tax bracket.

So, out of the gross rental income you will keep about 5/6k. Not great is it ?

This is very rough and there is a big chance that the govnt may not allow any interest against tax on rental income.There is a fear that this may be cancelled or diminished.

And finally - I must dash -it's sunny again...
you may lose your tracker mortgage . It depends on your bank and loan conditions. banks dont like trackers.It costs them money. If you tell them ,or if they find out that you are not living in your owwn property then they stick you with a much higher interest rate.
A couple of percent extra on your loan could wipe out any so-called rental profit.

You could end up with a total extra cost of 8.000 euros for that extra bedroom.

Now, read the other posts...
 
oldnick said:
Waxy - this is not meant to be rude but ...
.. there are several posts in this thread on property investment that will answer many of your questions.
There are other sites such as irishlandlord.com. Also the Revenue.ie have a guide to rental income online

If anything is still unclear then this is a great thread on which to ask. Also, regarding an advisor -an accountant probably - thats not a bad idea, but they cost money so it's best to acquire some free knowledge first before paying for his advice.

However as its raining and I cant garden at the moment, I'll give a very rough quick breakdown...

your new rental home cost 12k - but you are getting 10k rental incomefrom your own property.

After you have paid the costs listed by Brown,including a heavier-than-before insurance you may end up with 7k/8k -and thats assuming tenants are always paying or dont wreck the place.

You can -at present- claim 75 % of the interest that you Pay on the loan. I dont know what interest you pay, but let's say its 6k, so you can claim 4.5K against tax so, really, your taxable income is only 3/4k - you will pax tax of between 1k to 2k depending on your tax bracket.

So, out of the gross rental income you will keep about 5/6k. Not great is it ?

This is very rough and there is a big chance that the govnt may not allow any interest against tax on rental income.There is a fear that this may be cancelled or diminished.

And finally - I must dash -it's sunny again...
you may lose your tracker mortgage . It depends on your bank and loan conditions. banks dont like trackers.It costs them money. If you tell them ,or if they find out that you are not living in your owwn property then they stick you with a much higher interest rate.
A couple of percent extra on your loan could wipe out any so-called rental profit.

You could end up with a total extra cost of 8.000 euros for that extra bedroom.

Now, read the other posts...
Click to expand...

That's a great help oldnick.

Would there be any chance that the govt would bring in some sort of help for people in my situation? There must be loads of us.
We are still being forced to pay huge taxes and other bills even though we are losing money hand over fist and paying out far, far more than we are getting in. I thought tax was meant to be on profit not loss?
If we could sell the property and just pay off the remaining 100k or whatever we still owe the bank that would be at least something, what would be the problem with this that you could see?
Haven't seen any articles in papers about this problem and there must be some people just not declaring for tax purposes. Is there any way the govt are turning a blind eye to this?
 
are you having a laugh? A government doesn't turn a blind eye to tax evasion! Thats money out of their pockets!
 
peteb said:
are you having a laugh? A government doesn't turn a blind eye to tax evasion! Thats money out of their pockets!
Click to expand...

Possibly because it would cost too much to detect the evasion and they are putting their money into other areas that are costing them more money?
Can't see how they'd crack down on this one to be honest..
 
It's definitely a key area on which Revenue is concentrating. I believe they are checking PRTB registrations (without which you can't claim the 75% mortgage interest against tax) and checking tenants' applications for rental relief against landlords' declarations of tax.

I agree that there are probably lots of people renting out their properties without declaring the income, but I think, apart from the moral and legal problems, it's a high-risk course of action.
 
WaterSprite said:
It's definitely a key area on which Revenue is concentrating. I believe they are checking PRTB registrations (without which you can't claim the 75% mortgage interest against tax) and checking tenants' applications for rental relief against landlords' declarations of tax.

I agree that there are probably lots of people renting out their properties without declaring the income, but I think, apart from the moral and legal problems, it's a high-risk course of action.
Click to expand...

Ah yeah doubt I could persuade the wife to take the risk to be honest! Damn women and their moral compass...
is rent relief not gone?
 
mcgibney - the reason I wrote with some emphasis that I fear that the govnt will abolish or diminish tax relief on interest paid is because :-

1) the precedent has been established -already 25% has been cut. The govnt is also slowly ceasing tax relief on home loans. It seems a natural progression to abolish it on rental income.
2) Landlords are wicked evil money grasping villains in the eyes of many - abolishing or diminishing the relief would be less unpopular than many other possible steps.
3) Above all, I wanted Waxy to be aware that whatever is the rental income situation today could be - probably will be - much tougher in a year or so.

I'm probably too pessimistic but everything about rental income in the last few years has made me so, thus I urge Waxy to be very cautious about renting another place and letting his own.
 
oldnick said:
mcgibney - the reason I wrote with some emphasis that I fear that the govnt will abolish or diminish tax relief on interest paid is because :-

1) the precedent has been established -already 25% has been cut. The govnt is also slowly ceasing tax relief on home loans. It seems a natural progression to abolish it on rental income.
2) Landlords are wicked evil money grasping villains in the eyes of many - abolishing or diminishing the relief would be less unpopular than many other possible steps.
3) Above all, I wanted Waxy to be aware that whatever is the rental income situation today could be - probably will be - much tougher in a year or so.

I'm probably too pessimistic but everything about rental income in the last few years has made me so, thus I urge Waxy to be very cautious about renting another place and letting his own.
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Unfortunately this particular 'little guy' is going to be collateral damage in a move like that.
Is it true that rent relief has been abolished for any new place I would move into too?
 
I rent out a 2nd house, and to be honest, if I was able to get rid fo it I would.

This is my 1st year as a LL, but I get the feeling that its gonna get a lot tougher in years to come.
 
I have made submissions to my local TD's to have something done about this which was discussed here. While one TD did ask about it in Dail questions as usual change is something that seems to take ages in Irish politics. The reply was that they would consider it along with all other measures for the next budget.
 
Waxy -you say your present one-bedroom apt is worth ca. 150k .(must be in good area or quite large -hope you haven't overestimated).
Are there bigger apts or maybe a terraced house, even a mile or so away, for a similar price?

If yes, then perhaps you may ask the bank can you sell your apt because of absolute family need and with the same loan buy the bigger property.

The bank is owed 280k .the bank will still be owed 280k but you will have a much bigger property for you and your child and hopefully another one.

I am making this sound simnple. It is not. There are some threads on this. Elcato is on the right track . Bank will probably say no. If they say yes they'll probably ask you to take a variable. And there'll be costs. But approach them anyway.
It's far better than taking on an extra property.

If the bank says no -you'll have to stay in a unsuitable property for most of your life until you pay every penny of the outstanding 280.ooo euros, even though you'll never ever be able to raise a family there - then tell them to xxxxxx and throw back the keys.

Other posters will attack me for the last sentence. But if a couple suggest a scheme that means they can raise children in reasonable accommodation and the banks will get their money and that bank says no, then the bank is to blame if you return the keys.
 
waxy said:
Possibly because it would cost too much to detect the evasion and they are putting their money into other areas that are costing them more money?
Can't see how they'd crack down on this one to be honest..
Click to expand...

The easiest way they will catch you is through the NPPR.
 
vandriver said:
In reply to your query,yes rent tax relief has been abolished for new leases.
Click to expand...

AFAIK its been abolished for new first time tenants, not for new leases.

So if you were already renting and eligible for the rent tax credit prior to the last budget, you are still entitled to the credit if you move house and enter a new lease.
 
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