Rental income is calculated on the gross amount of rents receivable. A profit or a loss is calculated separately for each rental source. The rental income which is liable to Income Tax is the aggregate of the profits as reduced by the aggregate of the losses.
When completing an Income Tax Return, rental income from property situated in the Republic of Ireland is chargeable to tax under the provisions of Case V Schedule D while rental income from property situated outside the State is chargeable to tax under the provisions of Case III Schedule D.
It is important to remember that losses from one source cannot be written off against profits from the other. In particular, Irish rental losses cannot be written off against profits from foreign rental properties and vice versa.
The types of rental income liable to Income Tax can be more diverse than you might imagine. The following income is considered to be rental income, taxable under Case V, Schedule D:
For rental expenses to be deductible there are three main rules:
Specific Expenses include:
Please be aware you can never claim a deduction for your own labour. If you carry out repairs or gardening yourself, you cannot include this as a deductible expense against rental income.
The NPPR and Household charges are not allowable expenses against rental income.
Broadly speaking, interest on money borrowed to purchase, improve or repair a rental property is deductible in calculating your rental income for tax purposes, subject to certain conditions.
The allowable deduction for interest accruing on loans used to purchase, improve or repair rented residential property is restricted to 75% of the total interest accruing.
This 75% restriction does not apply to non-residential property. In the case of offices, warehouses, etc. 100% of the interest is allowable against rents receivable.
A further restriction was introduced in 2006. Unless the landlord has complied with the registration and payment requirements of the PRTB (Private Residential Tenancies Board) in relation to each and all tenancies in the rented property then the interest on monies borrowed for the purchase, improvement or repair or rented residential properties will not be an allowable deduction against rents receivable.
If the loan to purchase the rental property includes stamp duty, legal fees, auctioneers’ fees, etc. then the interest on the loan must be apportioned. Only the interest relating to the actual cost of purchase, repair or renovation of the property is allowable.
Interest incurred prior to the first letting is not allowable (pre-letting expense) neither is the interest incurred after the final letting (post letting expense). Interest incurred during a period in which the landlord occupies the property is not allowable.
Wear and tear allowances are available in respect of capital expenditure incurred on fixtures and fittings provided by the landlord for the rented residential property. This includes furniture, showers, kitchen appliances, etc.
The rate is 12½% over eight years.
If an individual rents out a room in his/her sole or main residence as residential accommodation and receives up to €10,000 per annum this amount will be exempt from Income Tax, PRSI and the Universal Social Charge providing conditions are met.
The €10,000 limit includes rent, utility bills, laundry, food, etc.
If the individual receives in excess of €10,000, the Rent-a-Room exemption will NOT apply and the entire rent receivable will be liable to income tax, PRSI and the Universal Social Charge
An individual cannot avail of rent-a-room relief in respect of payments for accommodation in the family home by a child of the landlord under any circumstances. There is no restriction where rent is paid by other family members, for example, nieces and nephews.
The relief does not affect an individual’s entitlement to mortgage interest relief i.e. Tax Relief at Source.
The relief does not affect the individual’s entitlement to Principal Private Residence Relief from capital gains tax on the sale or disposal of the property.
You can opt out of the relief for a year of assessment by making an election on or before the return filing date for the year of assessment concerned.
If your landlord resides outside theRepublicofIrelandand you pay rent directly to them or electronically transfer the money into their bank account either inIrelandor abroad, you must deduct income tax at the standard rate of tax (currently 20%) from the gross rents payable.
Failure to deduct tax may leave the tenant liable for the tax that should have been deducted.
At the end of the year you are obliged to complete a Form R185 showing the tax deducted from the gross rents which you should then give to your landlord. The landlord can then submit this form to the Revenue Commissioners and claim this amount as a credit.
If, on the other hand the non-resident landlord has an agent who is resident in the state, then there is no obligation for the tenant to deduct tax from the rent. Instead the tenant should pay the gross rent to the agent.
The agent is then liable to pay income tax on the rents received from the tenant in the capacity of Collection Agent for the landlord. The agent is then required to register as self employed and submit an annual tax return and account for the tax due.
In general, rental income from property located outsideIrelandis calculated on the full amount of rents receivable, irrespective of whether or not it has or will be remitted intoIreland.
Broadly speaking, the same deductions are available in calculating the taxable rental income as if the rents had been received inIreland.
Income tax on these rental profits is chargeable under Case III of Schedule D.
In the case of an individual who is not domiciled inIreland, the taxable rental income is computed on the full amount of the actual sums received in the State without any deductions or reliefs for expenditure incurred.
Rental losses from the letting of property outside the State cannot be offset against rental income from the letting of property in the State and vice versa. Such losses can only be offset against future rental income from property outside the State.
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