Denis has a salary of €65,000. He has a house, which is separate to his sole or main residence. He received €20,000 gross rental income from this house and he paid allowable expenses of €1,000. (None of which relate to interest on borrowings used in the purchase, improvement or repair of the property.)
In 2021, Denis spent €15,000 on preparing a basement flat in his sole residence for letting. As €10,000 of this qualifies for wear and tear allowance, he can deduct €1,250 if Rent-a-Room Relief not claimed. (Denis cannot deduct the wear and tear allowance if he claims Rent-a-Room Relief.)
2021 tax calculation
Denis let the basement flat for €750 per month for November and December 2021. He spent allowable expenses of €500 on letting and legal fees.
Denis calculates his taxable income for 2021 with a Rent-a-Room Relief:
2021 taxable income with Rent-a-Room Relief
Description | Amount | Taxable income |
Salary |
|
€65,000
|
Income from house: |
|
|
Rent
|
€20,000
|
|
Deduct rental expenses
|
€1,000
|
|
Net rental income
|
|
€19,000
|
Income from basement flat: |
|
|
Exempt (Rent-a-Room Relief applied)
|
€1,500 |
€0
|
Total taxable income
|
|
€84,000
|
Denis also calculates his taxable income without Rent-a-Room Relief:
2021 taxable income without Rent-a-Room Relief
Description | Amount | Taxable income |
Salary |
|
€65,000
|
Income from house: |
|
|
Rent |
€20,000
|
|
Deduct rental expenses
|
€1,000
|
|
Rental income
|
|
€19,000 |
Income from basement flat:
|
|
|
Rent
|
€1,500
|
|
Deduct rental expenses
|
€500
|
|
Deduct wear and tear allowance
|
€1,250 |
|
Rental loss
|
|
- €250 |
Total taxable income
|
|
€83,750
|
Denis decides opt out of Rent-a-Room Relief in 2021.
Although his rental income from the basement flat is taxable, he can use wear and tear allowances and the €500 expenses. This creates a rental loss of €250 from the letting of the basement flat. He can set this against his taxable rental income from the house.
2022 tax calculation
In 2022 Denis received rents of €9,000 for the basement flat.
Denis calculates his taxable income for 2022 with a Rent-a-Room Relief:
2022 taxable income with Rent-a-Room Relief
Description | Amount | Taxable income |
Salary |
|
€65,000
|
Income from house: |
|
|
Rent
|
€20,000
|
|
Deduct rental expenses
|
€1,000
|
|
Net rental income |
|
€19,000 |
Income from basement flat: |
|
|
Exempt (Rent-a-Room Relief applied)
|
€9,000 |
€0
|
Total taxable income |
|
€84,000
|
Denis also calculates his taxable income without Rent-a-Room Relief:
2022 taxable income without Rent-a-Room Relief
Description | Amount | Taxable income |
Salary |
|
€65,000
|
Income from house: |
|
|
Rent |
€20,000
|
|
Deduct rental expenses
|
€1,000
|
|
Rental income
|
|
€19,000 |
Income from basement flat: |
|
|
Rent
|
€9,000
|
|
Deduct wear and tear allowance
|
€1,250 |
|
Rental loss
|
|
€26,750 |
Total taxable income |
|
€91,750 |