1 Identify Gross Rental Income
Residential property in Ireland is normally let on a twelve monthly basis by way of formal lease. This lease document is an important item for tax purposes as it shows what your gross rental income is for that particular period.
You ignore security deposits and do not include them as part of your rental income on receipt and do not treat them as an expense when and if refunding them. If you do not return a security deposit and use it to meet the cost of repairs then you should include it as rental income and claim a tax deduction for the cost of the repairs.
If your property is not let under a formal lease you should take into account the rents due to you for the period in question.
2 Identify Rental Expenses
Renting out a property is like running a business and most expenses incurred in relation to the property will be allowed for tax purposes either immediately against your rental income, over a period of years, or else against the sale of property if and when disposed of. Like a business your expenses must be divided into the following categories:
a. Tax Allowable Expenses for Immediate Claim
- Interest paid on a loan for the purchase, improvement or repair of the property from the date of the first letting of the property. Note that for residential properties mortgage interest relief is only allowed provided the property is registered with the Private Residential Tenancies Board.
- Tax relief is now fully allowable on mortgage interest for residential properties as a rental expense.
- Insurance of Property and Contents.
- Certain Mortgage Protection Policies.
- Repairs.
- Agents letting and rent collection fees.
- Property Management charges.
- Professional fees including the fasttax.ie membership fee.
- Legal fees for lettings and rent collection.
- Head rent paid on a lease or ground rents paid in respect of the let property.
- PRTB registration fee.
- Any other expenses not covered above which are not capital expenses.
TAX SAVING TIPS
An area that is often overlooked by investors is the personal costs incurred in dealing with tenants and in collecting rents e.g. motor and travel, phone calls etc. This can be a contentious area with the Revenue as there is no specific tax allowance for these. However, in practice the Revenue may allow some reasonable level of costs if they can be justified in your own particular circumstances. For example if you have one property and the rents are paid by direct debit it would be hard to justify a claim for personal expenses for dealing with the letting. On the other hand if you have multiple units and have to collect weekly rents from tenants then a claim could be made for expenses incurred in doing so.
A claim for the cost of mortgage protection policies is another area that is often overlooked. The cost of the premium can be claimed as a tax deduction against the rental income provided it is a death only policy linked to your mortgage with no other benefits attaching.
Tax Allowable Expenses Allowed over 8 Tax Years: The cost of the fit-out of the property e.g. furniture, electrics etc is allowed for tax purposes over a period of eight years at a rate of 12.5% per annum. This is known as a Wear & Tear Allowance. In addition to the expenses listed above, when you purchase a property it may include certain fixture and fittings, which will qualify for the tax Wear & Tear allowance. This is particularly applicable to new properties and refers to built-in furniture e.g. wardrobes, press units etc, central heating, security systems and sanitary fittings. The cost of all these items should be identified for you by the Vendor and you will be entitled to claim a tax allowance thereon against your rental income over a period of eight years. This area is often overlooked by investors.
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