Query re. taxable income for 2011 on rented apartment

I

irishbogger

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Hi folks,
Let me give a little background....

Bought a property in May 2011. When I took ownership there were no tenants in there

I spent a few thousand euro renovating the apartment (pre-tenancy) - I have attached a screenshot of this for reference

I only started renting the apartment in September, at 800euro PCM

I read about preliminary tax returns for 2011 which is to be returned by end of Oct 2011. By this time, I will have only had an income of 1600 for income from this rental.

I have never done self-assessment tax before (only PAYE) so this is all new to me - Yes, I need to get the advise of an accountant next year, but was hoping with a bit of help i'd be able to sort out the 2011 forms since there is so little income.

Assume that I have no other income.

QUESTIONS:
I know that I can't write-off the reurbishment cost against income tax as the renovation was done pre-tenancy, but can I write 12.5% of the furnishings off as wear&tear? Also, what can be written off in this instance? Can, for example, the door handles, paint etc. etc. be written off? See attached screenshots of my expenses to date....

Any help on this matter would be greatly appreciated. Thanks

IMAGE: [broken link removed]
 
shesells said:
It's the 2010 tax return that's due in October 2011?
Click to expand...

But I read that you can pay a preliminary tax return by October 2011 for income earned in 2011?

I want to make sure everything is done 100% as i'll be returning to college in 2012 and need to make sure everything is squeaky clean for grants etc.
 
Preliminary tax for 2011 is due on or before 31 October 2011 (or 15 November 2011 if the payment is made via ROS).

PT should be based on 100% of the prior year (i.e. 2010) liability or 90% of the current year (i.e. 2011 liability).

In your case, you had a nil income tax liability for 2010, so your 2011 PT payment should be 100% of nil, i.e. no payment is required.
 
irishbogger said:
Hi folks,
Let me give a little background....

Bought a property in May 2011. When I took ownership there were no tenants in there

I spent a few thousand euro renovating the apartment (pre-tenancy) - I have attached a screenshot of this for reference

I only started renting the apartment in September, at 800euro PCM

I read about preliminary tax returns for 2011 which is to be returned by end of Oct 2011. By this time, I will have only had an income of 1600 for income from this rental.

I have never done self-assessment tax before (only PAYE) so this is all new to me - Yes, I need to get the advise of an accountant next year, but was hoping with a bit of help i'd be able to sort out the 2011 forms since there is so little income.

Assume that I have no other income.

QUESTIONS:
I know that I can't write-off the reurbishment cost against income tax as the renovation was done pre-tenancy, but can I write 12.5% of the furnishings off as wear&tear? Also, what can be written off in this instance? Can, for example, the door handles, paint etc. etc. be written off? See attached screenshots of my expenses to date....

Any help on this matter would be greatly appreciated. Thanks

IMAGE: [broken link removed]
Click to expand...

Have you read the Revenue guidance on this topic: http://www.revenue.ie/en/tax/it/leaflets/it70.html#section7

The majority of the stuff in your spreadsheet (in terms of value) can & should be capitalised and written off via wear & tear over 8 years.

If you retain those receipts as listed, and claim wear & tear on 7/8k of furniture & fittings you won't have any problem if you get audited.

If the legal expenses relate to getting the property let then they are an allowable pre letting expense; if they relate to the acquisition of the property then they are a cost of acquisition and are a deduction against any future gain on sale of the property.
 
Thanks for the info folks.

So my understanding is:
1) For what income i'll get in 2011 for this property (commencing September) - Which works out at 800 for September, October, November, December (800 x 4) 3200 - In 2011 I pay NO tax on this... I will pay tax on this in October 2012?

2) Almost everything I have listed in the spreadsheet above, that I have receipts for, can be deducted at 12.5% per year for the next 8 years, commencing on my Tax return in October 2012?

3) The legal expenses were for the acquisition of the property hence not tax deductible (I put it seperately) - But, if I were to gain from the sale of the property in the future, this amount is not liable for capital gains tax?


Thanks for the link to the Revenue, going to give it a look at now
 
Yes.

On or before 31 October 2011, you're due to pay your balance of income tax payable for 2010 and your preliminary income tax for 2011. Preliminary income tax for 2011 may be based on 100% of your 2010 income tax liability or 90% of your estimated final 2011 income tax liability. You're therefore on the hook for nil and nil respectively.

But then on or before 31 October 2012, you'll have to pay the balance of income tax payable in relation to 2011 (which is whatever it is) plus preliminary income tax for 2012 which will be either 100% of your 2011 liability or 90% of your estimated 2012 liability. In other words, come October 2012, you'll be required to make two payments so budget accordingly.
 
Gekko said:
But then on or before 31 October 2012, you'll have to pay the balance of income tax payable in relation to 2011 (which is whatever it is) plus preliminary income tax for 2012 which will be either 100% of your 2011 liability or 90% of your estimated 2012 liability. In other words, come October 2012, you'll be required to make two payments so budget accordingly.
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I'm a little confused with preliminary income tax - is this optional rather then mandatory?
i.e. you have the option of paying 2011 tax liability before 31 October 2011 based on your 2010 liability so as to limit what you'll have to pay by 31 October 2012 for the 2011 year?
 
portstorm said:
I'm a little confused with preliminary income tax - is this optional rather then mandatory?
i.e. you have the option of paying 2011 tax liability before 31 October 2011 based on your 2010 liability so as to limit what you'll have to pay by 31 October 2012 for the 2011 year?
Click to expand...

It's mandatory but the amount you pay is optional!

The way I've always thought about it is like this: if you were only on PAYE you'd have paid all of your tax on your income at the same time you earned it. Preliminary tax tries to make people pay the tax on their income in the same year as the income it is earned, rather than effectively having a loan from the exchequer...

i.e By 31st October 2011 you are obliged to file your tax return for 2010, pay any balance of tax due for 2010 (bearing in mind you were supposed to have paid prelim tax in Oct '10), and make a declaration with payment of preliminary tax for the current year (2011). This amount is supposed to be either 100% of the 2010 tax liability, or 90% of the 2011 liability.

So if you had paid 90% of 2010's liability in October 2010, all you're on the hook for is the remaining 10% owed for 2010, plus 90% of the 2011 liability. However, what happens to lots of people is that they don't pay any preliminary tax in their first year, because they aren't technically obliged to - as 100% of the previous year's liability will be nil if this is the first year self-assessed. They then discover the following October that they now owe a full year's income tax for year 1, as well as being supposed to pay the same amount again in preliminary tax... so they just don't pay much, or any, preliminary tax due to cash flow constraints. This then repeats year after year, as they're never quite able to catch up.

The reality is that while you may strictly speaking be liable to interest if you don't pay enough / any preliminary tax, the Collector General tends not to pursue interest, particularly if the amounts in question are small, and the actual income tax return is filed and paid by the relevant filing deadline...
 
mandelbrot said:
The reality is that while you may strictly speaking be liable to interest if you don't pay enough / any preliminary tax, the Collector General tends not to pursue interest, particularly if the amounts in question are small, and the actual income tax return is filed and paid by the relevant filing deadline...
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Not anymore...they're very quick nowadays to issue interest demands.
 
In that case, would it still be wise to send in a tax return for my 2011 income (800 x 4 = 3200)? I assume this tiny amount would be tax free, as I have no other income?

I just want to keep completely on track of things
 
irishbogger said:
In that case, would it still be wise to send in a tax return for my 2011 income (800 x 4 = 3200)? I assume this tiny amount would be tax free, as I have no other income?

I just want to keep completely on track of things
Click to expand...

Whoa there and back up the digger!

If you want to keep on track on things the first thing you need to do is get your head around them, because based on that post you haven't actually managed to grasp the difference between a tax return, and paying tax.

Your 2011 tax return is not due to be filed until October 2012, and cannot be filed at least until this year is over.

On the other hand, by the 31st October 2011, you are obliged to make a preliminary tax declaration and payment on account for 2011. The payment can be the lesser 100% of your 2010 liability (which may be nil if you weren't self-assessed in 2010), or 90% of the 2011 liability (which you haven't worked out yet).

No matter what happens you won't owe 3200, because you will be entitled to deductions for various expenses, which will reduce that 3200 somewhat. And then you will be taxed on whatever income remains, at either 41% or 20% (plus PRSI / USC, so 51% or 30% in taxes). Even if you have 3200 of rental income with no expenses at all, the most you should pay in preliminary tax is 1,469 (90% of 51% of 3200).
 
99% certain I know the answer but just in case....the interest paid of which you can deduct 75%...is it interest net of trs?
thanks
 
portstorm said:
99% certain I know the answer but just in case....the interest paid of which you can deduct 75%...is it interest net of trs?
thanks
Click to expand...
You can't claim TRS on a rental property.
You'll need to tell revenue to stop it and arrange to pay back any you've claimed so far.
 
Berni said:
You can't claim TRS on a rental property.
You'll need to tell revenue to stop it and arrange to pay back any you've claimed so far.
Click to expand...

yes i informed revenue at the time but because trs is done on a yearly basis i got it for the last couple of months of last year when house was rented...the guy in revenue had no problem with this
 
portstorm said:
yes i informed revenue at the time but because trs is done on a yearly basis i got it for the last couple of months of last year when house was rented...the guy in revenue had no problem with this
Click to expand...

To answer your question then, yes it's interest net of TRS, and only interest relating to the period when the house was let.
 
Thanks for the info provided to my query, i'll have a little more knowledge at least when I go to my accountant
 
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