Leverage both Airbnb revenue and room rental relief

I’m buying my first home and looking to buy a home with enough space to rent additional rooms, ideally with room rental relief.

I have heard that the threshold for rent relief for a room is € 14,000 and, if this ceiling is exceeded from rental income, I would be subject to tax on the entire income.

I have also read that Revenue does not consider income from short term guest accommodation as rental income because visitors use the accommodation as guests rather than renters. It is taxed either as “other income” or as “business income”.

Does this mean that I can claim the full € 14,000 tax deduction by renting space as rental accommodation, in addition to providing short-term accommodation, in the form of renting? for an additional bedroom on Airbnb?

Mr. JP, Dublin

With all the pessimism that reigns these days, it’s good to hear about people leading their lives in a normal way. And you’ve clearly done some research on your options for earning extra income to help cover the cost of your mortgage.

However, most advisers would suggest that you don’t make your financial plans based on the most optimistic forecasts. You need to make sure that the home you hope to buy is affordable, even if all of the income streams you are hoping for may not materialize as steadily as you expect.

The first thing to confirm is that you are correct that the rental of rooms (or beds) in your home to short-term paying guests will not be considered tax-free income under the rental relief. of a bedroom. But nothing prevents you from using both formulas to increase your income and help cover the cost of the mortgage.

Rent a room

The One-Bedroom Rental Relief was introduced in 2001 to help homeowners make ends meet. It is useful not only for first-time buyers, who are often shy about the big bills they pay, but also for older people looking to increase their retirement income when their children have moved.

As you say, the limit you can earn is $ 14,000 per calendar year – or just under $ 270 per week if the room is rented for the full 52 weeks of the year. Respecting the limit is essential. Go over € 1 and the whole of € 14,001 suddenly becomes subject to income tax and universal social contribution (USC).

There are a few rules. Obviously, this only applies to your own home – your primary private residence in terms of income – not a second property and you must be resident in the home at the same time.

The room (or rooms – yes, there is nothing that limits you to a room outside the upper income limit) cannot be rented out to your child or partner – although you can rent it out to you. any other family member, such as a sibling.

And they must be rented to medium to long term hosts – the minimum is four weeks. So someone who attends a language school or college agrees; someone who visits for a week or two is not.

Keep in mind that anything you receive in rent is supposed to cover bills associated with the rental, such as room maintenance.

It’s important to remember that even though the income is tax exempt, you are required to report it, so you will need to complete a tax return.

Airbnb

So far, so good. But you also want to explore the possibility of renting a room or rooms to short-term guests through portals such as Airbnb.

First of all. Make sure that such an arrangement does not violate any agreement you have with a room rental tenant. You don’t want to risk up to $ 14,000 in regular tax-free income for quick cash.

Short-term rentals – defined as periods of up to 14 days – have become much more controversial in recent years – especially as the supply of available rental housing has dried up. In many places, this is a hot political issue.

The good news for you is that the people least affected are the people in your place – those who follow Airbnb’s original model of letting people stay with them in their homes. Those who rent second homes or apartments are now more severely controlled.

In many cases, especially in areas of rental pressure, Airbnb owners need a building permit, which they are less and less likely to obtain. However, there are exemptions to this and one of them is for homeowners who house short-term guests in their home while they continue to live there – an arrangement that revenue commissioners call “sharing.” of the House “.

In this case, an owner can accommodate as many short-term guests as they want. A landlord who rents out his entire home – as long as it is his home and not an investment property – can also avoid the building permit even if he is not there for that period for so long. that it is not rented for more than 90 days in a year. These 90 days can be spread over the year: they do not need to run consecutively.

However, you will need to register the property with your local planning authority. The required forms are Form 15 and Form 17. The first is filed at the start of the year, the second shortly after the end of each year in which you benefit from the exemptions.

Your local authority will be able to provide copies – probably from their website.

Finally, exempt from town planning or not, income from short-term rentals cannot be deposited under the room allowance and is subject to tax and USC. You will be required to report this to Revenue via a return each year, so be sure to keep your documents clear and up to date.

Exceeding

The only thing I would advise is not to overextend yourself financially. Income from room rental relief and Airbnb or other short-term booking portal can be very helpful in honoring mortgage payments even after tax deduction, but only if there are people to rent the space.

If you made this choice a year or two ago, you could be in serious financial stress now, with universities working remotely and no tourist travel. With the rollout of vaccination, the assumption must be that the next academic year will see a return to physical classes. How long it takes tourists to return is a whole different matter.

People think these things are once in a lifetime, but we have now had two economic shocks affecting real estate, employment and tourism in the span of 12 years – well over the life of an average mortgage.

Please send questions to Dominic Coyle, Q&A, The Irish Times, 24-28 Tara Street, Dublin 2, or email [email protected].com. This column is a reading service and is not intended to replace professional advice. No personal correspondence will be exchanged

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