I became an accidental landlord last year. The house is fully furnished. Do I estimate the value of all the furniture and fixtures in the house and then get 12.5 per cent of that figure for the first year for wear and tear? Is wear and tear the same as depreciation?.
Can I claim legal fees or stamp duty for the purchase of the property I bought last year? I have consulted a number of publications including Revenue’s IT 70, but some of the contents and explanations are far from clear.
Ms M O'K, Cork
Dealing with rental income requires a lot of attention to detail and can be intimidating for those who have not previously gone down this route. It sounds like you are one of the army of “accidental landlords” who sprang up in recent years as they moved home but were unable to offload their previous properties.
I am somewhat confused by your reference to claiming legal fees or stamp duty for the purchase of the property last year – which sounds more like a deliberate decision to buy rather than any accident of fate but let’s leave that aside.
The broad rule is that you can claim relief for most expenses actually incurred in providing the property for the rental market but not otherwise.
In this “otherwise” category sit squarely any stamp duty. It also includes legal fees incurred in the purchase of the property. However, you could claim legal fees incurred in drawing up rental contracts, for instance.
Wear and tear
Similarly with wear and tear, there is provision that you can offset the value of items you have bought for the rental premises – such as tables, chairs, beds and so on – at a rate of 12.5 per cent a year over eight years. However, to keep Revenue happy, you should have receipts showing you paid for them in the first place.
I cannot see how you would be able to claim wear and tear on furniture that was in the property when you became an accidental landlord as you did not buy it. There is no provision that I am aware of for estimating the value of fixtures and fittings.
As you will know from IT70, which is a very useful document for landlords – accidental or otherwise – there are fairly generous allowances against rental income. So what can you claim?
Importantly, from the start of next year, you can claim 80 per cent of the interest paid on any mortgage loan to buy your rental property. Until now, that figure was 75 per cent.
Minister for Finance Michael Noonan has indicated that he intends to increase the amount of interest you can deduct by five percentage points each year until it gets back to 100 per cent.
However, as an accidental landlord, the mortgage may not have been paid originally with rental in mind. You can only claim interest during the actual period of the rental lease.
Capital expenditure
Repair and maintenance costs are also covered, as are legal and accountancy costs incurred directly as a result of the rental. The same goes for ground rent or other rates – including water and waste charges – that you pay yourself.
The annual insurance premium for the building, as well as any public liability insurance, are also eligible as are management fees incurred in collecting rent and otherwise managing the property.
If you provide electricity, phone, broadband or television services without charging for them separately, you can also claim this money back against rental income.
What is not allowed? Well, the second home tax for one. Also, any capital expenditure – such as building an extension. More generally, expenses incurred before you start renting the property or after you finish renting it also fall outside the scope of any relief.
And clearly, if you are availing of the Rent a Room scheme, under which you pay no tax within certain limits, you wouldn’t be trying to claim further expenses.
Please send your queries to Dominic Coyle, Q&A, The Irish Times, 24-28 Tara Street, Dublin 2, or by email to dcoyle@irishtimes.com. This column is a reader service and is not intended to replace professional advice.
