RENTAL PROPERTY INCOME AND EXPENSES

 

  

INCOME 

Generally, any income you receive from letting out property will be liable for income tax and must be included on an IR3 Income Tax Return.   This income could be from letting out land  or buildings, and in some circumstances, having flatmates or private boarders living with you, or caring for other peopleís children in your home.

 

 

EXPENSES THAT CAN BE DEDUCTED FROM RENTAL INCOME 

When you earn income from a rental property, there are often a number of expenses you incur.  The following examples are examples you may be able to deduct from your rental income for tax purposes:

Interest- you can only claim interest on the mortgage taken out for the purchase of the rental property

Borrowing costs- associated legal fees as below , mortgage broker charges, finance institution bank charges to obtain the finance

Legal fees- you can claim legal fees incurred in arranging a mortgage to finance the rental property, arranging a tenancy agreement, collecting bad debts

Rates

Insurance- on property, furniture and effects, mortgage repayment

Motor vehicle and other travel

 Letting agentís fees and commissions

Depreciation

Repairs and maintenance

Accounting fees

Bank charges on rental bank account

Postage

Printing & Stationery

 Landlord Association, Property Investors, related magazine subscriptions

Gardening, lawnmowing

Tenancy, Tribunal Court costs associated with tenancy dispute

Cleaning

Advertising for tenants

Telephone costs

Heating and Cooling

Mower Fuel

Use of Home if you have a specific area associated with the rental business

Power costs

any other relevant costs

 

 

WHAT EXPENSES CANíT BE DEDUCTED 

Some expenses cannot be claimed for tax purposes.   For example, you cannot deduct capital or private expenses from your rental income. 

Capital expenses are costs you incur to buy or increase the value of a capital asset. 

Private expenses are incurred for your own benefit, and are not connected with producing taxable income. 

Examples of non deductible expenses are:

The purchase price of the rental property
The capital part of any mortgage repayments
Interest on money you borrow for a purpose other than financing the rental property, even if you use the rental property to secure the loan
The cost of repairing or replacing any damaged part of the property, if the repairs or replacement make improvements to the property and increase its value.
Real estate agentsí fees and legal fees incurred as part of buying or selling the property
The cost of making and additions or improvements to the property.

These last three points may be added to the purchase price of the property and depreciation claimed on them, as part of the cost of the property. 

 

SELLING THE PROPERTY OR GOING TO LIVE IN IT YOURSELF 

When you sell the property, or cease it as a rental and go to live in it yourself, there are depreciation recovery implications.   That is, you have to declare back as income all depreciation previously claimed as an expense.  

If you sell the property at a greater price than you paid for it, the depreciation recovery will be the full amount of depreciation previously claimed. 

If it is for a lesser amount, you should obtain a valuation of the depreciable assets on which you have previously claimed depreciation, and compare this with the initial cost of these depreciable assets to establish the depreciation recovery.

 

 

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