Renting a room can boost your income, but only if you play by the rules – The Irish Times

If I rent out a few rooms in my house under the yearly room rental program with tenants sharing the utility bills with me, should the money I receive for these utilities be considered a income for the ceiling of €14,000? ?

I wouldn’t factor utilities into a higher rent as others have found it encourages waste, especially now with so many people working from home.

Including utility reimbursements in the cap leaves me with little incentive to rent an extra bedroom, especially with skyrocketing and unpredictable utility costs.

Utilities should not be counted as income. Why not maximize the supply of rooms during a housing crisis? I would be grateful if you could clarify my understanding of the rules.

Renting out a room or rooms in your home to tenants while you live there is a helpful way for people to defray the cost of their mortgage. And, as long as you meet certain criteria, it can be tax-free.

But there are strict rules. Crossing these limits can be costly.

Chief among them is the limit of what you can earn. This limit is, as you say, €14,000 and it is absolute. Go to €14,001, and not only will you be taxed on the extra €1, you will be taxed on the full €14,001.

When I say taxed, it includes income tax, social security (PRSI) and universal social levy.

Whether you build utilities into the rent is a question for you, and I hear what you’re saying about why some landlords would choose not to. But it’s the total amount you receive – including any money you receive to cover the cost of utilities – that is assessed against the €14,000 limit. Functionally, it might be easier to set rents to include utilities at a level that does not exceed the financial limit. At least you know where you are.

Because if the increase in utility bills that you intend to pass on, in part, to your tenants gets to a point where your annual income from rent and utilities exceeds the €14,000 limit, you’re going to be liable for a tax bill in the entire amount of income.

And it’s up to you to let Revenue know. If you apply for the room rental program, you are obliged to notify the tax authorities of the details in an annual tax return even if the income is exempt from tax. Cutting corners on these disclosures is a sure way to get you in trouble with the tax authorities.

Utilities, if charged in addition to rent, are not the only things to consider when determining whether you meet the €14,000 tax exemption threshold; the same applies if you charge for food, laundry, cleaning or any other similar household service.

These are not the only rules. Another central principle is that it is your house, not an extra house you have. And the relief does not apply to short-term stays under providers like Airbnb where residents are considered guests rather than renters by the taxman. In addition, you are prohibited from renting to family members or providing housing on behalf of your employer.

There are benefits for owners. Apart from the tax-exempt income, people operating under the room rental system do not have to meet the requirements imposed on other landlords. This includes contentious issues such as notice periods, although you really hope they have been settled harmoniously, especially since you will be living under the same roof.

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In addition, even if landlords receive means-tested social benefits, they will still be able to access room rentals without negatively affecting this social benefit, which will make it particularly useful for people with limited means struggling with the cost of living. current life. squeeze.

It should be noted that, according to the rules of the scheme, you do not have to be the owner of the property to benefit from tax relief. Assuming a tenant has the landlord’s consent to sublet, they can also benefit from the program, but not if they accept tenants under the Housing Assistance Program (HAP). In this case, only the owner can benefit from the scheme.

But unlike normal registered landlords, you are not allowed to deduct expenses incurred in maintaining the property from your rental income, only the net amount being assessed for tax. Under the room rental program, the gross amount – whatever you receive – is assessed to see if you meet the program criteria.

If you have particularly high expenses in a given year, it may be worth considering whether or not to opt out of the scheme for that year and assess your tax liability as a normal owner. Nothing prevents you from doing so, although it is clear that you will then have to comply with all the other rules governing landlords.

As you say, in our housing crisis, encouraging people to rent rooms in their homes – especially empty parents, whose children have been raised and moved from the family home to their own accommodation – is a way of trying to help people in need of housing. Just last week there was a call online for anyone who could provide a room for a doctor arriving in the state to help with our separate health crisis.

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But since earned income is tax exempt, it will always be a trade-off for government and finance ministers between the value of the incentive and the need it serves. And, of course, there’s nothing to say that if the limit were raised, landlords wouldn’t simply increase the amount they charge existing tenants rather than make additional rooms available.

The irony, of course, is that in many cases those who have the rooms available for rent under the program aren’t financially stressed enough to make the prospect of sharing their home with others attractive.

Expanding the scale of the relief is one way the government is trying to alleviate the housing crisis, but it’s not a dry, simple solution and it’s not the one they have opted so far. And until they do, you’re stuck with the rules in place.

Please send queries to Dominic Coyle, Q&A, The Irish Times, 24-28 Tara Street Dublin 2, or email [email protected]. This column is a reading service and is not intended to replace professional advice