Tax on Rental Property - Top Tips
In this article, we highlight some key areas of tax that property owners should be aware of in order to comply with their responsibilities and also to give you some top tips.
When is a tax return required?
There are many possible situations when a property owner might need a tax return, but the two main scenarios are when either a property is let out or when a property that is not your main residence is sold. There are conditions in both cases, and in some instances there may be reliefs available but this serves as a general rule of thumb.
There is a common misconception that when a property is let, it only needs to be declared on a tax return once it is profitable. This is not the case. All rental income received should be declared to Revenue.
It should also be noted that if your property or property portfolio is loss-making, there is a good reason for you to be declaring the loss now by submitting a tax return. Although it will have no tax benefit now, later down the line once the portfolio is profitable, the losses generated in the early days can be utilised. By not informing Revenue Commissioners of the losses via a tax return, they would simply have been lost in the abyss.
If you are an Irish resident you are subject to Irish taxes, therefore any rental income or gain on the sale of an overseas property will also be subject to the Irish tax regime - just as an Irish property would be. However, non-Irish rental income won’t be pooled with Irish rental income, which is a disadvantage if one of the portfolios is loss-making and the other profitable.
It is important to stress that only the interest you are repaying on your mortgage is allowed as a deduction and for residential property this is now limited to 75 per cent of interest. You cannot claim relief on any of the capital repayments you make against your mortgage. This is very important because lots of landlords include the capital repayments in their tax return and as such wrongly calculate their liability.
Remember to register with the Private Residential Tenancies Board, (PRTB) If you are not registered with the PRTB you will not be allowed to claim some reliefs so it is important you do this.
Revenue will normally treat rental income from a property held in joint names as if it belonged in equal shares. However, if you actually own the property in unequal shares and are entitled to the income arising in proportion to your investment, then you have the right to be taxed on that basis. You must simply contact the Revenue Commissioners to put this into place However, do note that they will expect to see some evidence to support your claim for the income apportionment.
Moving out and renting your home
The rental income (less any tax deductible expenses such as mortgage interest) on the let of your former home is taxable and would most certainly need to be declared on your tax return.
Consider operating a separate bank account for rental activities, to improve efficiencies from an administrative perspective.
It is recommended that you speak with a professional such as your local TaxAssist Accountant before making any significant purchases or decisions about your property portfolio. His/her advice could save you a lot of unnecessary tax being paid to the Revenue Commissioners!