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 people’s 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
agent’s 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 CAN’T 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 agents’ 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.
If
we can assist further, please email TotalAccounting as
follows:
CONTACT
TOTALACCOUNTING BY EMAIL BY CLICKING ON THIS LINK
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