If you receive income from rental properties or from renting out holiday homes, then you must declare these properties to Revenue. You will also need to file a rental income tax return related to any income earned from leasing out those properties. This includes rental income from properties abroad and rental income from an Irish property you may be renting out while you live abroad.
Filing rental income tax returns can prove troublesome for many landlords in Ireland. With so many expenses to account for and so many categories to file under, errors can very easily be made. In particular, there are 5 common pitfalls that people encounter when filing a rental income tax return which can lead to significantly underpaying or overpaying tax on income earned.
1. You need to be PRTB registered to claim mortgage interest as an expense
You need to be registered as a landlord with the Private Residential Tenancies Board in order to be able to claim mortgage interest payments as an expense on your rental income tax return. If you are unable to produce evidence of your valid PRTB registration upon a Revenue audit, your claim for mortgage interest expenses will be denied and you may also be subject to interest and penalties.
The ability to claim mortgage interest as an expense is crucial to landlords as this can be a very sizeable expense. Therefore you need to ensure you are registered, and continuously check that your registration is still validd.
2. You can only claim 75% of annual mortgage interest payments
Once PRTB registered, you can claim annual mortgage interest as an expense on your rental income tax return – but only 75% of the total amount. Many people can make the mistake of claiming 100% of mortgage interest payments, a mistake that can prove very costly.
To ensure that you are confident in the amount of mortgage interest you should claim on your rental income tax return, ask your mortgage provider to issue you with a mortgage interest certificate or annual statement. In the event of a Revenue audit, you’ll need to be able to provide such documents as proof of your mortgage interest payments.
3. If you did not rent out the property for the full year, only claim expenses for the let period
If your rental property was not being let for a portion of the year, you can only claim expenses against the period the property was still considered a “rental property”. For example, if you lived in the property yourself for the first 4 months of the year or began living in the property yourself again after a tenants lease expired.
This does not apply to periods when the property was unoccupied in between tenancies. It only applies if the property effectively was not classified as a rental property for some part of the year.
4. Ensure to classify rental property expenses correctly
Landlords will from time to time have to bear the cost of repairs and maintenance on their rental property or replacing furniture and fittings. Thankfully, you can claim tax deductions and tax relief on these expenses in your annual rental income tax return. However, you need to ensure that you classify such expenses correctly.
You can claim the full cost of repairs and maintenance costs such as plumbing, electric work, repairs to current fixtures or fittings as a tax deduction. However when filing a rental income tax return you will need to claim 12.5% tax relief against the costs of new furniture, fixtures and fittings purchased in the relevant tax year as a “capital allowance” claim.
5. Ensure expense totals are relevant only for the tax year (Jan-December)
Many expenses may accrue on a yearly basis which is not apportioned with the tax year i.e. January to December. For example, your annual house insurance payment on your rental property may cover a 1 2month period from April 2015 to April 2016 rather than January to December 2015.
In such scenarios, you will need to apportion the fees to the relevant tax year as you are only entitled to claim for expenses relating to January-December of the tax year that you are filing your rental income tax return for.
Are you struggling with filing a rental income tax return?
If you earn a rental income, Tax Return Plus can help with your Self-Assessment and file your income tax return for you. We provide a professional, affordable, rental income tax return service starting at just €150 (+VAT). Just contact our team of experts.