Tax Liability on Rental Income

Pearl

Registered User
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Hi there,

I'm an accidental landlord of an apt in Dublin rented under the RAS scheme. I filed Form 11 today via ROS.ie for 2016. Rent did not quite cover mortgage for that year. Management fees 2K, interest 9K (75% of that went onto form), expenses 300 Euro. Zero profit, loss of just over 2K.

It seems my tax bill for 2016 is over 3K. I have filed the return, but not paid yet.

I met with an alleged tax professional today, in the hopes that I had missed something. She offered no suggestions, but not sure if she was properly qualified.

Posting here as an SOS. If the annual tax bill is going to be 3K, we need to quit the RAS scheme and either rent for full market value or sell asap. An annual loss of 5K (2K in management fees + 3K in tax) would be pure madness.

Thanks,

Pearl
 
what is the rental income, have you furniture in the apartment?
are you sure you have all expenses listed?
 
Rental Income was 16,200 for the year. Yes, it's all our furniture. Rented from Sept 2015. The only expense that's obvious to me is the management fee + 300 Euro in random handyman call-outs. I went to the tax pro as I thought I'd get advice on what else could be listed for relief. But, alas, no joy.
 
Are you including capital repayments on your mortgage when you calculate your 'loss'? If you are how much was this in total over the year?
 
You are not making a loss. You are reducing the capital on your mortgage on the repayments over the €9,000 interest. If you are unable to cover the tax liability or shortfall in the mortgage I suggest you sell.
 
Let's calculate your profits

16,200 gross rental income

interest = 9,000
mgt fees = 2,000
expenses/maintenance = 300

You are making 4,900 profits.


Now, the Revenue only allow 75% of the interest.

So the Revenue profits are

16,200 less (6750+2000+300) = 7150 rental profits according to Revenue

With 40% tax + USC + possible PRSI, you could be paying 3,000+ in taxes, yes.
 
I hope you didn't make the classic mistake of deducting capital repayments to determine profits.
 
life policy on the mortgage
landlords insurance policy
items for Capital allowance ( furniture and appliances)
have you done a med one for 2017?
PRTB charge?

you seem to be missing a few big expenses.
 
Yes - I am including capital repayments - I just checked bank statement for that year - total mortgage paid for 2016 was 15,355 Euro. Rent received was 16,200 Euro. As mentioned above, management fees are 2K.

Easel - I am struggling to see how it's not a loss. The property is in major negative equity still. Should I not be weighing up the 5K annual "loss" against any potential for profit in the case we sell? If the annual tax bill + management fees are circa 5K, and we don't sell for 5 years, we'd have forked out 25K that we'd be unlikely to make back in a sale.

Am I thinking about this all wrong?
 
I hope you didn't make the classic mistake of deducting capital repayments to determine profits.

Can you explain why that's not how I should be thinking of it? Sorry - bit of a financial pleb here.

Clara16 - I don't have Landlord's insurance, I don't have medical expenses for 2016 either. I did pay 1) life policy 2) PRTB charge and have 3) furniture - where on the Form 11 should they be filed?
 
Am I thinking about this all wrong?
Yes, you are confusing profit and cashflow.

A rental property may be profitable but have a negative cashflow (because you are making principal repayments on an associated mortgage). Bear in mind that paying down the mortgage will gradually reduce your negative equity.
 
Now, the Revenue only allow 75% of the interest.
It's probably worth noting that 80% of interest payments in 2017 are deductible, 85% in 2018, 90% in 2019, 95% in 2020 and full deductibility will be restored for interest payments in 2021.
 
Any business repaying debts does not include the capital repayment as a cost.

It's not a cost.

The bank gave you a mortgage, you are paying them back.

That's not a cost.

The interest is a cost.
 
I also hope you're not confusing negative equity with capital losses, another typical mistake made, even by bank officials.
 
If you are not comfortable with this just go to any accountant who can do the sums for your and submit your return. You will pay a fee but at least you know its correct and you are minimising tax etc. You dont need a tax specialist for this.

You know, if you are not already maxing out your pension AVC and have employment income, you could do an AVC to generate a tax credit which may offset the tax due on the rental income.
 
You know, if you are not already maxing out your pension AVC and have employment income, you could do an AVC to generate a tax credit which may offset the tax due on the rental income.

I think this is slightly misleading

Any benefit from pension contribution stands alone. I agree it is useful to get tax relief on pension contributions.

However that is separate from the rental income.

Anyone can benefit from pension contributions. Just because a person has rental tax liability not real reason/extra benefit to making pension contributions.
 
Yes those are important points about pension.

Just in my mind I prefer paying an AVC rather than paying the tax I could have avoided by doing that AVC.
 
Yes, it's all our furniture.

Are you claiming capital allowances.

  1. Furnished Lettings

    A wear and tear allowance is available in respect of capital expenditure incurred on the provision of plant in a house which is let furnished and the income from which is chargeable under Case V.1 (section 284(6) TCA 1997) Unlike the position with commercial buildings, there is no requirement that the lessor bear the burden of wear and tear of the plant to qualify for the allowances (section 298 TCA 1997)..

    The expenditure must be incurred wholly and exclusively in respect of a house which is used solely as a dwelling which is, or is to be, let as a furnished house, where that house is provided for letting on bona fide commercial terms in the open market (section 284(7) TCA 1997).
See here for more details.

https://www.revenue.ie/en/tax-profe...ains-tax-corporation-tax/part-04/04-08-12.pdf
 
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