Allowable expenses are those costs incurred in maintaining and repairing a property, but not for making capital improvements. This includes costs associated with buying a property in an abandoned or run-down state, or when the owner is not in a position to rent it out. If the allowable expenses exceed the rental income, the owner will have a loss that can only be offset with profits from the same rental business in future years. The main real estate expense for most people is the mortgage payment. The interest portion of the mortgage payment is eligible for relief, but not the repayment portion.
The rules are changing, and now homeowners receive a tax credit based on 20% of their mortgage interest payments, which is less generous than the old system. The allowance is designed to prevent people with low rental income from having to declare and pay taxes on that income. It could also force some homeowners to enter a tax bracket, since they must declare the income used to pay the mortgage on their tax return. Mortgage settlement fees can also qualify as relief if they are paid in advance or added to the cost of the mortgage. If you rent a furnished property and have enough furniture so that the tenant can live there without providing anything else, you are allowed a deduction of 10% of the gross rent for the cost of furniture and equipment. If you increase your mortgage loan for your buy-to-rent property, you may be able to treat the interest on the additional loan as an expense on income or get an income tax relief, as long as the additional loan goes wholly and exclusively to the leasing company. If you are traveling to your property, check it out, give instructions to the builders, visit the leasing agent and then travel back; the cost of the trip is allowed.
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