Mortgage Interest Deduction for Rental Properties

Clients will be aware that the allowable interest deduction against rental income is restricted to 75% of the mortgage interest actually paid. However in response to the housing crisis in Ireland at the moment Section 15 of Finance Act 2015 provides that a taxpayer who rents residential property for a period of 3 years, under a qualifying lease, to qualifying tenants, may deduct 100% of the interest accruing during that 3 year period when computing their taxable rents from the property. Essentially it is an increased rental deduction of 25% of the mortgage interest paid during the 3 year lease.

A “qualifying tenant” is defined as someone who –

• qualifies for social housing support from the housing authorities, under Part 4 of the Housing (Miscellaneous Provisions) Act 2014 or section 19 of the Housing (Miscellaneous Provisions) Act 2009, or
• is entitled to rent supplement payable by the Department of Social Protection.

A “qualifying lease” is defined as –

• a lease which is registered with the Private Residential Tenancy Board (PRTB) and
• a lease which commences on or after 1 January 2016 but not later than 31 December 2019.

The Act also provides for the relief to apply to a lease that was entered into prior to 1 January 2016, provided the lease runs for 3 years after 1 January 2016, and all other conditions are met.

There is a catch, the additional 25% interest deduction cannot be claimed in the year in which the mortgage interest is paid. Rather it is claimed as a rental deduction after the end of the 3 year lease. For example, if the landlord enters into a qualifying lease for 3 years on 1 January 2016, the lease will therefore end on 31 December 2018. In the tax year 2019 the landlord will claim an additional rental deduction relating to the 25% interest paid but not claimed for 2016, 2017 and 2018 inclusive.

Contact OSK Tax Consultants if you have any queries in relation to the Mortgage Interest Deduction for rental properties.