If you have a high income, the personal income tax on rental income can be really expensive.
However, there will inevitably be some expenses incurred in the rental process which can be deducted from the rental income.
Interest on the loan: note that it is only the interest component, not the principal part of the repayment, and you can ask for the exact amount from the lending bank. In addition, interest due to late payment of the mortgage is not deductible.
Property tax: Property tax during the rental period is considerably higher than for owner-occupation, and this cost is also deductible.
Fire insurance: Under the new policy, fire insurance during vacancy is also included, although of course the owner will need to prove that the vacancy was accompanied by a serious search for a tenant.
Restoration costs: the first restoration done before the rental is not included, only the restoration done during the rental period to maintain the property in its original condition.
Maintenance costs: This does not include renovation costs, but painting, pest control and property charges (including late payment of interest penalties) are deductible.
Agency fees: The latest policy is that agency fees from the first tenant onwards are deductible as a reasonable rental expense.
Third party escrow fees: Some landlords will employ a third party, usually an agent, to handle all tenant needs during the tenancy and this additional cost is also deductible.
Furniture costs: The cost of replacing or renting furniture, but not the cost of buying new furniture.
Internet, utilities and gas: this is also deductible if it is covered by the landlord.
All of these expenses require proof and the Inland Revenue requires the homeowner to keep them for five years for reference.
The Inland Revenue also offers a simplified solution to the taxation process: 15% of the rental income is directly tax deductible, on top of which you can continue to deduct the interest on the loan.
Homeowners can choose a solution that suits their circumstances.
