Tax on Rental Income
If you have a rental property in Ireland, you are obliged to file a tax return to the Revenue Commissioners whether the property is profit making or not.
A lot of people believe that if the rental income is not covering the mortgage they are not liable to tax. The full mortgage repayment is not a tax deductible expense. Only 75% of the interest element of a mortgage repayment is allowed as a tax deduction against the rents received.
Gross rental income – allowable rental expenditure = taxable rental income
You are liable to PAYE, USC and PRSI on the taxable rental income.
What expenses are tax deductible?
Broadly speaking, deductible expenditure is only allowable to the extent that it
- would be allowable if the receipt of rent were treated as the carrying on of a trade during the currency of the lease or during the period in which you were entitled to the rent,
- is not of a capital nature, and
- is incurred by you.
The following are examples of expenditure that may be deducted:
- Ground Rent
- Rates
- General Repairs (Capital Expenditure excluded)
- Insurance
- Management Fees: paid to an agent
- Service charges
- Advertising for tenants
- PRTB Fees
- Accountants fees for preparing rental accounts
- Wear and Tear – Depreciation of furniture from a dwelling and fittings at the rate of 12.5% per year over 8 years.
- Mortgage Interest – 75% only
Important – You cannot claim a deduction for your own labour.
What Expenditure Cannot Be Deducted?
The following are examples of expenditure you may not deduct when computing your rental income or losses:
- Pre-letting expenses
- Expenses incurred prior to the date on which the premises were first let apart from auctioneer’s letting fees
- advertising fees and
- legal expenses incurred on first lettings
- Expenditure incurred between lettings in certain circumstances,
- Interest in the period following the purchase of the property up to the time a tenant enters into a lease and after the final letting
- Post-letting expenses
- Expenses incurred after the final letting
- Capital expenditure incurred on additions, alterations or improvements to the premises unless allowable under an incentive scheme or incurred on fixtures and fittings
- Expenses incurred on lettings that are exempt under the Rent-a-Room provision
It is therefore extremely important to maintain proper records of rents received and details of expenses incurred. All receipts should be kept for inspection by the revenue if required.
Tax Relief at Source (TRS)
Tax Relief at Source (TRS) is tax relief for the interest paid on a qualifying mortgage on your home. This is paid at source by your bank/mortgage provider, meaning your monthly repayment is automatically reduced by the amount of the tax relief.
If you are currently in receipt of TRS on your investment property, it is important to be aware that you are no longer entitled to receive this when you rent out your property
Rent a Room Relief
When an individual rents a room(s) in their principal private residence as residential accommodation and the rental income does not exceed the exemption limit for the year of assessment in question the profits or losses on the relevant sums are treated as nil for income tax purposes. Accordingly, profits are disregarded for income tax, PRSI and USC purposes. From 1st January, 2015, the rent a room exemption limit is €12,000 per annum.
While the rent received is exempt from Income Tax, PRSI and USC, you do have to declare it through a Tax Return annually. As a PAYE worker you declare this Income by filing a Form 12. Self-employed individuals can declare this income through their Form 11 prepared annually
Capital Gains Tax (CGT)
If you sell your investment property a liability to Capital Gains Tax (CGT) may arise. The current rate of CGT is 33%.
