In general, factors to consider here are the likelihood of an increase in property value and the cost of borrowing. It is also important to bear in mind the tax consequences that arise when you buy an investment property.
Ensure you have not overestimated the return you will receive and underestimated the cost of borrowing, maintenance, repair and the time involved with tenants. You will also have to ensure you have enough cash-flow to allow for periods of vacancy.
As a landlord you will be a chargeable person for income tax purposes and you will therefore need to submit an annual income tax return, or if your net rental income is below €5,000 you can declare it to Revenue through a Form 12. Further information is available here
Typical rental expenses which you can use to reduce your income tax bill include:
- From the 1st January 2019 100% of the mortgage interest paid on a loan to buy/improve or repair a rental residential property can be deducted as a rental expense against the gross rents received.
- Rates, goods and services rendered in connection with the letting of the property.
- Repairs, insurance, maintenance and management fees.
- Mortgage protection premiums.
Capital Allowances of 12.5% per annum are also available on the value of fixtures and fittings acquired for the property.
Keep in mind that where your rental costs exceed your rental income, the loss you incur can only be offset against future rental income. You cannot however offset the loss on your rental property against the tax on your employment income.
Local Property Tax (LPT) is not an allowable expense.
Keep all receipts as the Inspector of Taxes may wish to examine these.
Ensure each tenancy of the property is registered with the PRTB in order to claim mortgage interest relief.
Bear in mind that rental income is treated in the same way as self-employed income, therefore, it may have the effect of pushing you into the higher tax bracket.
Many people wrongly think that they will reduce their tax liability by holding property in a limited company. This is not the case as the rate of corporation tax on rental income is 25%.
Also undistributed investment and rental income in a close company is liable to a further tax charge called a close company surcharge. Take tax advice before putting any property into a limited company.
If you are tax resident and domiciled in Ireland rental income from foreign properties will be taxable in Ireland. This income may also be taxable in the country that the property is located.
Some tax incentives for rental income do exist but professional advice should be sought here. The annual rental income will be taxed in Ireland also if there is an appreciation in the value of the property, capital gains tax will be charged, currently at the rate of 33% in Ireland.
Investing in property carries its own risks but can prove fruitful for the brave. It is important to view this as a long term investment.
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