Landlords & Rental Income

Did you know that rental income is liable to tax when it is earned (becomes due) as opposed to when received. This means that you should include unpaid rents in your tax return, even though you haven’t received the money. 

Income refers to gross rents less the allowable costs of renting the property. Renting can relate to residential or commercial property. In most cases the landlord will be a private individual therefore the income will be liable to income tax, PRSI and USC. 

Where rents are received by a company then the income is liable to corporation tax at a rate of 25%. The 12.5% rate only applies to trading income.

The Revenue Commissioners sets-down the type of costs which you may offset against you rental income. Any cost associated with the landlords own time are not allowed i.e. maintenance by the landlord, management expenses, travel of the landlord.

In a property rental company a landlord may draw a salary however the level needs to be appropriate considering the services rendered and the duties performed; 10% of gross rental income is normally accepted as being reasonable.

In relation to what costs are allowed the key point is that the costs are only allowed against rental income. For a property which has not been rented previously cost incurred prior to the renting of the property are not allowed. Once the property has been rented on the first occasion then rental costs will be allowed for periods of non-occupancy i.e between tenancies and during periods of renovation.

The following are the typical deductions allowed against gross rents:

  1. 80% interest deduction for borrowings to cover the purchase, improvement or repair of residential property. Deduction is 100% for commercial property. Note interest is not allowed as a deduction for the period unless the tenancy has been registered with the Residential Tenancies Board.
  2. Costs of maintenance, repair, insurance and management of the premises, paid to a third-party.
  3. Costs of a capital nature are allowed as a fixture & fitting deduction over 8 years e.g. flooring, furnishings, white goods.

As a measure introduced to increase the availability of accommodation, a person can provide a room in their own home. The rental income from the tenancy of up to €14,000 pa. (€12,000 up to 31/12/16) is exempt from tax.

Persons availing of this scheme should note that if the income exceeds this figure the full amount is subject to tax.

Short-term renting of rooms on AIRBNB will not qualify for this relief.

If you have a rental property and are unsure as to what tax you should pay the Tax Man can advise you.



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