offsetting morgage interest off rental property

D

domino

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Hi All,

I am looking to purchase a second property and to rent out my first house. Can I offset the morgage interest on my first property against rental income.
 
Without more detail it's not possible to answer that question. However the bottom line is that it's what the loan is used for rather than the property/asset that it's secured against that counts. If you pay interest on money used to buy or renovate an investment property then you can offset that interest against rental income from that property (even if the loan is secured on another property). Note also that you can't claim owner occupier mortgage interest relief and offset interest against rental income with respect to the same interest. Hope that helps.
 
Thanks Clubman,
I was told that if you have a home loan on your property, you cannot offset your morgage interest against your rental income because the morgage was taking out initially for an owner occupier residence as opposed to a investment property. Is this correct?
 
Hi,

Can I ask what you mean by offsetting the interest relief. I have my first house rented and bought a second property and moved in as couldn't afford the stamp duty! I was told by TRS that I am only allowed interest relief on mortgage on the premises that is my main residence and the tax relief is not only calculated on the amount of interest you are paying on your mortgage, it is also calculated on the amount of tax reliefs you are getting as something to do with the amount of interest paid in the tax year. So I'm getting less mortgage interest relief on new property then old property and also paying much more interest on as bigger loan.
 
Hi all

I need to ring revenue on this myself. When you follow the link below it clearly says that interest on tax is allowable to be off set against rental income.
But
when you go into the refernce material just below where it syas this you get the following excerpt copied and in Red below. Now this is dated from 1998.

If any one can confrim that below is outdated please do, I will post my reply from revenue when those lazy Feckers get back to answering their phone!



However, under the Finance (No. 2) Act 1998, the interest on borrowing used to purchase, improve or repair premises will not in certain circumstances be allowed as a deduction in arriving at the taxable rent.
New Restriction for Residential Premises

Subject to certain transitional arrangements, Section 1 of the Act provides that interest on borrowed money used on or after 23 April 1998, in the purchase, improvement or repair of a residential premises cannot be offset against rental income in arriving at the taxable rent (or allowable loss) in respect of that premises. The restriction covers individuals, companies, trusts and partnerships.
A residential premises is defined as a building or part of a building which is used or suitable for use as a dwelling. It covers both houses and apartments and includes any garden, yard or outoffice which is usually enjoyed with the building.
Notwithstanding what the premises was when acquired or how it was previously utilised, the restriction applies for any tax year or accounting period during which the premises is, at any time during that tax year or accounting period, a rented residential premises
 
domino said:
I was told that if you have a home loan on your property, you cannot offset your morgage interest against your rental income because the morgage was taking out initially for an owner occupier residence as opposed to a investment property. Is this correct?
Yes - however if you remortgage the PPR and use the proceeds to buy an investment property then interest on any increased amount is allowable against rental income. For example, you have €80K outstanding on your PPR and remortgage it for €400K to buy an investment property for €320K: you can continue to claim owner occupier mortgage interest relief in respect of the €80K portion and you can offset interest on the additional €320K against rental income. Make sense?
 
can I put forward an example to see if option 2 is the correct way to proceed! (For simplicity etc I am leaving out stamp duty.)

PPR Mortgage 200K
PPR Value 300k

Savings 30K

Investment Property 300k
Max Mortgage 250k

Option 1: I get a top up mortgage of 20k on my PPR => 20+30+250 = 300
This means I can claim interest repayments on 20+250 against rental inclome

Option 2: Pay 30k off my PPR => this morgatge is now 170k
Then get a top up mortgage of 50k on my PPR =>50k +250k =300
This means I can now claim interest repayments on 50+250 against rental income
 
Galway99 said:
PPR Mortgage 200K
PPR Value 300k

Option 1: I get a top up mortgage of 20k on my PPR => 20+30+250 = 300
Are you sure that your lender will allow you to top up to 100% LTV?
This means I can claim interest repayments on 20+250 against rental inclome
Yes.
Option 2: Pay 30k off my PPR => this morgatge is now 170k
Then get a top up mortgage of 50k on my PPR =>50k +250k =300
This means I can now claim interest repayments on 50+250 against rental income
Yes.

There may be other factors to consider - e.g. the rate at which each of the loans/top-ups is charged (lender might ask what the PPR top-up is for and charge a higher rate for investment purposes), you may need to alter your PPR mortgage protection life assurance to cover the additional borrowings (especially if your original policy was decreasing term), you need to factor in the costs of borrowing and the opportunity costs of wiping out your savings in option 2. And possible other stuff too... Ultimately you need to identify the relevant issues and crunch the numbers to see what's the best option.

I am assuming a priori that you have somehow already identified property investment as the most suitable option for your needs...
 
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