I used to see landlords in a different light - not so now

R

RMCF

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As someone who is on the verge of renting out a property, I have really changed my mind on landlords and their incomes.

I used to think most were loaded, getting folk to pay their mortgage for them, and getting a 'free' property if they got it rented without gaps. A great money making scheme.

I am moving to a new house and it looks like I will have to rent out my current house as there are no buyers at present.

I now see comments from tenants such as "I'm paying that guys mortgage" in a new light. I will be getting slightly less each month than my actual mortgage repayment, but I accept this to get it rented. However, it looks like I will have to pay Revenue approx 50% of my rental income in tax each and every year (41% + 4% PRSI + 7% USC?). Then add to this costs such as NPPR tax, PRTB registration, increased landlord insurance, upkeep of 2nd house, future property and water rates?, accountant fees etc.

Ok so some of these are tax deductible, but being a 1st time landlord is a costly business.
 
Thanks for that RMCF. But be warned the worst thing is not the costs. It's the fear of the bad tenant :D. Getting a good tenant is the key to being a successful landlord and giving good decent accommodation at a reasonable price and looking after your tenant's well will go a long way to that, but you need to be tough too. You might let us know how you get on.
 
RMCF said:
However, it looks like I will have to pay Revenue approx 50% of my rental income in tax each and every year (41% + 4% PRSI + 7% USC?). Then add to this costs such as NPPR tax, PRTB registration, increased landlord insurance, upkeep of 2nd house, future property and water rates?, accountant fees etc.
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In general your comments are well put, but in the interests of balance, I think its worth noting that the circa 50% tax hit on rental income applies only to the residual profit element after deduction of allowable costs and capital allowances, and not to the entire income received.

In the current environment, most first-time landlords will struggle to make any sort of decent profit, and as such they shouldn't have much of a tax bill if they organise themselves properly and claim all their deductions etc entitlements.
 
I am considering offering what was previously my principal private residence for rent.(Moving in with grilfriend).
I hope to rent out my house through a management company for €550 per month. Mortgage is €650 per month, I know I'll have to pay the management people a fee and register with Prtb etc etc as per RMCF's opening post BUT do I need an accountant?

Can someone explain how I have to pay tax on making a loss? What allowences I can claim etc. How do I claim them?
I have only ever rented under the rent a room scheme before and am not a business person.
JB
 
It's totally up to you whether or not you hire an accountant. If you don't want to do so, you can perhaps follow Revenue's instructions here and also take a look at the Revenue [broken link removed] online and decide whether you can manage this yourself.

Not all of your expenditure as a landlord will be tax-deductible against rents, for example the capital element of mortgage repayments and 25% of your mortgage interest costs. This may result in you having a taxable 'profit' even when your rents do not cover your costs.
 
T McGibney said:
In general your comments are well put, but in the interests of balance, I think its worth noting that the circa 50% tax hit on rental income applies only to the residual profit element after deduction of allowable costs and capital allowances, and not to the entire income received.

In the current environment, most first-time landlords will struggle to make any sort of decent profit, and as such they shouldn't have much of a tax bill if they organise themselves properly and claim all their deductions etc entitlements.
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@ Bronte first off, well it looks like I have secured a decent tenant. I know got to know them over the last year or so, and they are moving to me from another landlord because I am saving them a few Euro each month. They seem very genuine people and are pushing me for a longer lease than the initial 1yr I want. I guess many landlords would be more than happy with someone like this, but since this is my 1st time renting, I want to 'suck it and see' for the 1st year and decide if I want to continue renting or get back to trying to sell the property.

T McGibney, fair enough I do appreciate that I have plenty of options to offset costs against the tax I have to pay, but my tenant really doesn't need much except for kitchen white goods and a few beds. From what I know claiming maybe 2 beds, plus a cooker, washing machine, fridge freezer and dryer will only get me a small amount each yr for 8 yrs - thats no great amount to give me relief. Plus each year I have the prospect of costly landlord insurance, NPPR tax (which may well rise), a potential for a property tax/rates in the future, communal grass cutting/upkeep, etc.

Now as you can guess I am no expert on this but the way I am guessing I would say that if I get €500 each month (6k annually) I would have to be prepared to be paying €2,500 to €3,000 each yr back to Revenue? Would this be too much do you think? Thats what sort of figure I'm working to, and the reason for the thread in the 1st place. I can't see it as 'making a profit' unless you had a property that was mortgage free.
 
RMCF said:
Now as you can guess I am no expert on this but the way I am guessing I would say that if I get €500 each month (6k annually) I would have to be prepared to be paying €2,500 to €3,000 each yr back to Revenue? Would this be too much do you think? Thats what sort of figure I'm working to, and the reason for the thread in the 1st place. I can't see it as 'making a profit' unless you had a property that was mortgage free.
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This amount of tax is WAY too high UNLESS your property is mortgage free or the government abolishes interest relief. While it MAY happen in the future, at the moment 75% of your interest cost is deductible against tax. Which I presume will leave you with very little taxable profit, if any.

Annual insurance, management fees, grass cutting, repairs etc are all deductible against tax (with the exception of NPPR charge).
 
As I said, I'm no expert !!

So perhaps I am judging it all wrong then? From reading forums I have seen posts that said about being taxed at 41%, others pointed out not to forget the 4% PRSI and now 7% social charge.

I did visit an accountant last yr for a general chat, and got round to chatting about renting, and I am nearly sure that they said I would need to put aside about €2k each yr for paying back to Revenue. Maybe I misheard them.

Perhaps I could give you some figures and see if you can guesstimate the amount of money I might own Revenue from my rental income.

I'll keep the figures rounded for simplicity.

Rental income €500 per month, €6k annually.
Our tax rate - 41%
My mortgage interest repayments - €375 per quarter, €1125 annually.

So is €845 of that €1125 not included in what I have to pay back? Or it that wrong too?
 
The main problem is when a tenant stops paying the rent, and the new LL discover's theres no legal way to get a bad tenant out of the house. Basically the law is all on the side of the tenant. When the LL do finally get a bad tenant out, there is no way of getting arrears or damages out of them. So its critical the LL gets a good tenant. A bad one could potentially financially ruin a LL.
 
RMCF said:
Rental income €500 per month, €6k annually.
Our tax rate - 41%
My mortgage interest repayments - €375 per quarter, €1125 annually.

So is €845 of that €1125 not included in what I have to pay back? Or it that wrong too?
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You don't pay tax on these €845, you deduct it from the total rent of €6k to arrive at your taxable income. You then calculate tax on this taxable income.

However, in addition to 75% of the interest, you can also deduct other expenses - letting agent's fees (if you use one), management fees (if you pay any), property insurance and any repairs and maintenance, of which there will very likely be some every year. And also wear and tear, even though this deduction will not be large in your case. This will further reduce your taxable income.

So all in all you won't pay half your rental income as tax, due to these deductions the figure will be lower. But, considering the fact that your interest cost is rather low, your accountant is probably right, the figure around €2K is probably realistic. However, it will be around 1/3 of your gross rental income, not 1/2, so things aren't quite so bad:)
 
AlbacoreA said:
The main problem is when a tenant stops paying the rent, and the new LL discover's theres no legal way to get a bad tenant out of the house. Basically the law is all on the side of the tenant. When the LL do finally get a bad tenant out, there is no way of getting arrears or damages out of them. So its critical the LL gets a good tenant. A bad one could potentially financially ruin a LL.
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I totally agree. I would suggest getting landlord's insurance, if possible (its cost is also tax deductible:)), that will pay OP the rent for a while if his tenant fails to, giving him time to go through the lengthy eviction process without facing financial ruin.

I am no sure how easily available such policies are in Ireland, I have one in Britain and it does provide some peace of mind. But I don't have one in Ireland.
 
Greta

Thanks very much for your time and effort in replying.

It has eased my mind a little, and every little helps.

I think I will arrange another appt with an accoutant and run a few numbers by them.

And I suppose one positive is that if I rent now in Feb 2011, I do not have to pay Revenue anything until well into 2012, so I can budget for it.

By the way, I know a few people who rent out houses for cash, and Revenue know nowt about this. This would be lucrative, but its way too risky for my blood. I like things above board.
 
6000 rent less

845 75% interest
90 PRTB
Rates/water
Depreciation 12.5 %
Advertising
Gardening
Repairs
house insurance
life insurance (as long as it's term insurance)

The NPPR is not allowable, but we are all hoping revenue will change their minds on this the same as they did (after many years) for the life insurance

You shouldn't need an accountant as it's very simple in your case, you're only adding to your costs, unless you feel you can't manage it yourself. Those fees are in any case deductable.

One question, your rent is only 115 a week. Is it a one bed appartment?
 
Bronte said:
You shouldn't need an accountant as it's very simple in your case, you're only adding to your costs, unless you feel you can't manage it yourself. Those fees are in any case deductable.
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Unless the OP has a good understanding of the tax system and the dynamics of how the various deductions and allowances affect their bottom-line liability, I would suggest that they probably do need some level of professional advice. The cost of such advice, after the tax deduction, should be minor.

RMCF said:
Greta
By the way, I know a few people who rent out houses for cash, and Revenue know nowt about this. This would be lucrative,
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Lucrative in the short-term, perhaps yes, but in the long-term? Definitely not!
 
Hi there,
I'm equally as boggled by the whole taxation issue for a rental property. I have a house that I bought before I met and married my husband and we built a house etc., and I've been renting the original house since January 2010 because the market just isn't there to sell it. I'm fully declared with PRTB and pay the NPPR etc. and have absolutely no wish to defraud anyone or the state. Nor do I want to treat my tenants badly or become a slumlord. I know I have to make a tax return on the property by October 2011 but I cannot work out what the tax will be. I've looked at ITFORM 70 on the Revenue website and whike I can follow most of it I just cannot get the whole tax on the interest part of the mortgage etc. Can anyone please tell me hoe I find out how much of my mortgage is interest? I know it's pathetic that I can't work this out myself, but I'm not so clueless on other issues.

My mortgage is 700 per month and the tenants pay 600. I have all the other costs like insurance, NPPR, grass cutting, bin charges etc to offset and I can follow that part of the calaculation. I just can't get my head around the mortgage/rental income bit. I'd be really grateful for any direction on this from those of you who see it clearly.
Thank you in advance for5 any advice,
RCRM
 
RCRM, you can find out how much of your mortgage payment for last year was interest from your annual mortgage statement, hope your bank provides in on calendar year = tax year basis.

If not, if by any chance your bank issues statements from September to September, say, then you'll have to ask them to provide you with the interest figure for 2010.

You could estimate the amount of interest yourself by applying the interest rate you were being charged last year to the amount of the mortgage. But as interest rate might have changed during the year and in any case interest is usually charged daily or monthly, it's hard to calculate the interest figure exactly, so you need to get it from the annual mortgage statement or the bank.

Then take 75% of that figure as your deductible expense.
 
Bronte said:
6000 rent less

200 NPPR

QUOTE]

Bronte, The NPPR €200 is not deductable against rental income.


OP, Is your husband/wife working? If a spouse is not working(or has a low salary), the lease is in his/her name then he/she pays tax on rental profit at the lower rate of 21%(or whatever it is) rather than 41%.
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Bronte, the way you wrote that list is really informative, thank you.

I have just come off the phone to revenue and I am even more confused than when i rang them.

Could I just ask a question of your list Bronte please?

You say 6000
minus
845
90 PTRB
etc.
etc.
etc.

So, if you deduct the 845 from the 6000, that leaves you with 5155. Can you then just deduct the 90 Euro for the PTRB directly from this...so you get 5065? Or should it also be a percentage of the 90Euro (like the way it's a percentage of the mortgage interest relief of 75%)????

So, for example...say my expenses were:-
845 interest (that being 75% of the amount of interest I pay)
90 PTRB
1000 management fees which includes cleaning, house insurance, bins
50 advertising
200 depreciation
________
= Total of 2125

Does this mean I would deduct 2125 from the 6000 rental income??

As in, are the PTRB, management fees, advertising, depreciation 100% deductable???

Thanks in advance!!!!!

P.S. Revenue told me that if you are PAYE you can just send the form back with your P60 to them instead of registering yourself as self-employed if you are renting out a house.
 
The 90 Euro is fully deductable. The only thing that is different is the mortgage interest at 75% and the wear and tear.

You cannot deduct your own labour, so if you cleaned the property that's not deductable.

__________________________

DonKing you are so right about the NPPR, I forgot about that as I was listing some of the common expenses. I'll modify my list.
 
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