I was reading a previous Property Clinic query about management fees and have a related question. I have a rental property in Cork with 10 other landlords and we each pay about €2,400 in an annual management fee (essentially it covers insurance, landscaping, presenting financial accounts, general repair and maintenance for the complex). It’s a separate fee from the property management company who deal with individual unit issues (as distinct from the development complex) and generate a 10 per cent or so fee to identify tenants, deal with Residential Tenancies Board (RTB) forms, rental payments and so on.
Is the annual management service charge an allowable expense to offset rental income? I did open the allowable expenses link that you referenced in the article, but upon opening it, it didn’t specifically address this fee, although it seemed to suggest that as long as it wasn’t reimbursable from the tenant, it should qualify.
You can claim certain expenses against your rental income to reduce the amount of tax you pay. Generally speaking, you may be able to take a full deduction for the annual costs of the service charges charged by the owners’ management company (OMC). On its website, Revenue set out what expenses are allowed. It is important to consult a tax expert on the matter of what is allowed and what is not. The annual service charge is normally made up of several items on the service-charge budget which are the running costs of the development for the year. Sometimes in budgets, there is a sinking-fund item and, in this regard, it will be important to understand what the service charges are made up of to assess what may be allowed.
According to Revenue allowable expenses include:
- Rates you pay to a local authority for the property;
- Rents you pay for property such as ground rents;
- Insurance premiums against fire and public liability;
- Maintenance of your property such as cleaning, painting and decorating;
- Property fees before you first rent out your property such as management, advertising, legal or accountancy fees;
- Cost of any service or goods you provide that are not repaid by your tenant (such as electricity, central heating, telephone, service charges, water and refuse collection);
- Certain mortgage protection policy premiums;
- Expenses between lettings provided the landlord did not occupy the property before a new lease was signed;
- Capital allowances;
- Repairs such as rot treatment, mending windows, doors or machines;
- Certain pre-letting expenses on vacant residential property;
- The cost of registering with the RTB.
You must keep full and accurate records of all expenses for each property you rent out.
Although the sinking fund may be somewhat capital in nature, it is usually used and saved for future larger capital expenditure projects such as roof replacement or lift replacement and Revenue has set out what expenses are allowed. In many cases, it is the amount on the service charge invoice which is received from the OMC that is claimed against the rental income in a rental income computation.
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In addition to this, you can claim capital allowances on the cost of furniture and fittings in your property. This is known as a “wear-and-tear allowance” or “depreciation”. The current rate for these allowances according to the Revenue website is 12.5 per cent of the cost per year for a maximum of eight years. Further information on all issues relating to tax allowances is available on revenue.ie and property owners must check this also.
- Aisling Keenan is a property managing agent and consultant and an associate member of the Society of Chartered Surveyors Ireland
- Do you have a query? Email propertyquestions@irishtimes.com
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