New to rental income and taxation

Hi there,

As a total newbie to declaring taxation on rental income and all that, I am looking to help someone out in a bit of a fix so please be patient. Question is this:

A friend is a landlord and gets rental income of about 690 a month. Monthly repayments on the mortgage are about 600. On top of that, there is buildings insurance (50 per month), life assurance etc.
My question is when he is calculating the difference between income and expenditure for the year, does he include the monthly mortgage payment of 600 as an expense? (the interest portion of this is about 210 i thnk)

So is it 690(income) - 600(monthly payment to bank)- buildings insurance (50 per month) = 40

Assuming he has no other tax deductible expenses, does that mean his taxable income is 40 per month i.e. 40 x 12 = 480 annually ??

Thanks
Heidi






sorry if this is really simplistic but I mean to check out all this stuff early next week on revenue. i understnad there is a guide and all

Only 75% of the interest is deductable provided you are registered with [broken link removed]
Allow for Wear & Tear
See Guide from Revenue

First, he can't claim the full amount of the loan repayment - only the interest element. And if the property is residential, this amount is then limited to only 75% of the interest.

There may be other expenses which he can claim. Check out Revenue's guide to rental income called IT70.

Sorry new user so can't post links

thankyou guys,

To confirm, that means then that annually, 690 income - buildings insurance 50 - 210 interest = 330 is liable for tax monthly. Is that correct? (assuming nothing else is tax deductible)

Annually, that is 8280 - 3120 = 5160 taxable? That sounds like an awful lot if monthly mortgage payments are 600 ?
What is the % tax on this figure? He was PAYE until recently
Also, he is registered with PTRB

Thanks for the great replies,

Heidi

I calc as follows
Income 690 *12 ....................................8280
Interest 210 * 12 = 2520 * 75% = 1890
Insurance ...................................600
Deductions ..........................................2490
Taxable................................................5790

Monthly mortgage payments don't come into the calc

Don't forget about the other amounts that are deductable
Wear & Tear
Auctioneers & Legal Fees
PTSB Fees etc

The taxable income calc above is added to his other income and tax is paid in the normal way.

Depending on his other income he could be paying 20% on some if not all of the rental income

I suspect, Heide, that you and your friend may not have realised that there is a nett loss every year for several years in terms of cash flow. I say this because maybe he/you thought mortgage payments were tax-deductible which ,except for 75% of the interest, they are not.

If he is on the lower rate of tax -and one must include all deductions like USC - he would be pay over 25% of his rental income in taxes which may mean about €1.400-€1.600 tax on the rent - depending on what is the final taxable rental income figure.

If your friend 's PAYE income is at the higher tax bracket -which effectively means half his extra income goes in various taxes - then he'd have to pay €2.500- €3.000 in rental income tax.

Also there's another €300 NPPR/property charge which is not allowable as an expence.

Not good is it ? Especially when he's not really getting any spare money from renting out this place after mortgage etc etc.

If he is paying too much tax then I advise you to marry him and this may reduce the tax liability.

thanks for the replies, its not good, no! Im thinking the best thing might be to get to an accountant to ensure all deductions are taken into account and ensure the liability is as low as possible, especially if Accountants fees are deductible also.

I wonder how many private rented accommodations are not declared in this country as a percentage of owned?
Did all those that bought as an investment realise the tax liability would be so big? I think not. It makes me think alot of properties are not declared? i dont know.

Again, thanks for your replies, its a great resource to learn how the system works.

Thanks

Heidi.

If life assurance was compulsory when a relevant mortgage was taken out, I believe it is allowable, yes.

There is so many extra expenses, taxes etc associated with buying a 2nd property. Is it still a worthwhile option for someone hoping to rent out to make some small income? Would be hoping to fund purchase of 2nd property from cash.

I make my living from rental income and am convinced that -generally - there is no point in trying to make any money from rent if, at the same time ,one is paying off a loan.

I am talking about making some income, not the hope (forlorn in the last several years)that the property may increase in value. That's another aspect as to why many people entered the BTL -hoping that the rent would cover much of the loan and the property would double in XYZ years. Leave that aspect to one side and concentrate on income.....

As regards pure income for people borrowing ;- the real answer is that ,yes, theoretically there is an income as per your own example. Your friend is making an income of 5-6.000 euros BUT friend has to pay a loan PLUS income tax which, together, are more than the theoretical income. And, as I pointed out before, if friend is on higher tax bracket then he will lose a lot of cash flow each year.

The problem for inexperienced renters with large loans is that many do not understand the difference between income and cash-flow. And ,sadly, Revnue don't give tuppence about the cash-flow problem . So, on paper one can make €10k rental income, pay 5k tax plus another 10k back to the bank each year. That's a "loss" each year of 5.000 euros for a lot of hassle. And yet it's an income of 10.000 euros. Get it?

-and this is why so many many second home owners are in trouble. They are making an income and yet finding they can't pay their loans


Other posters will say I'm exagerrating. And, of course, if one has a good income and can afford the tax plus mortage repayments,that's great. But, unless one has a good monthly cash surplus after all other costs then I think they'd be crazy to borrow to BTL.

And,finally, even if one had the cash to buy outright things are getting tougher and tougher for landlords.

You raise a good question and doubtless you'd welcome other contributions to this that may not have such a low opinion of BTL as mine.

Oldnick you are absolutely not exaggerating. Spot on the ball there as usual.

Jayleno, don't forget the 200 NPPR and 100 household charge are not tax deductable and if you don't pay them one will very quickly owe thousands, literally. Check out the NPPR table. That particular tax is due this month.

Re life insurance

It was not always allowable. But you have to be careful, it cannot be the type of policy that ends in a lump sum, just a basic life insurance. As the accountant.

Sunnygirl, you should do a thread of your own with all the facts and figures and reasonings on why you want to become a landlord/property investor.

Actually Sunnygirl, in my response to your question, I confused you with the OP,jayleno, who writes about her friend's rental income.
But it makes no difference to my point -the rental game is tough at the best of times, but really awful for someone trying to pay off a loan. And we all suspect it'll get worse.