If you have to file an income tax return in relation to rental income earned in 2009, you will probably be aware that the amount of allowable mortgage interest was reduced from 100% to 75% in 2009. What is less well known is that the reduction to 75% applies only from 7 April 2009 (Budget Day). You can therefore claim 100% of your mortgage interest up until this date.
A common misconception is that mortgage interest for the whole of 2009 must be reduced to only 75%. However by doing this, you are overstating your rental profits and overpaying tax.
As mortgage interest is the single largest expense which can be deducted against rental income, getting this wrong can cost you hundreds of euro in tax.
The illustration below shows how the allowable amount of mortgage interest should be calculated:
Total mortgage interest paid in 2009: €7,000
Apportioned between pre and post 7 April 2009:
Pre 7 April = 97/365 x €7,000 = €1,860
Post 7 April =268/365 x €7,000 = €5,140
The total €1,860 relating to the pre 7 April period can be claimed. Only 75% of the €5,140 relating to the post 7 April period can be claimed, reducing this amount to €3,855. This gives total allowable mortgage interest for 2009 of €5,715.
Had you just simply reduced the full €7,000 by 75% you would only be claiming €5,250.
So make sure that you are claiming your full expenses entitlement for 2009 and are not overpaying tax!
As an aside, for first time landlords, don’t forget to register your tenancy with the PRTB. You are not entitled to claim tax relief on mortgage interest payments at all without a valid PRTB registration letter. This can be a very expensive mistake to make.
For more tax saving tips and information, contact Fenero at email@example.com or visit our website www.fenero.ie