John, who has a number of investment properties, receives total rental income of €60,000. In 2019, John also pays loan interest of €60,000 on all his investment property loans. On how much of this rental income will John be taxed?

• A. €15,000
• B. Nil
• C. €60,000
• D. €40,000

Answer: (B)

The key idea is that rental income is taxed on net profit after allowable expenses. Interest paid on investment property loans is one of these deductible expenses. In this scenario, the full €60,000 of loan interest can be deducted from the €60,000 of rental income, leaving a net rental profit of zero. With no net profit to tax, the rental income tax liability is nil. In other words, the expense exactly offsets the income, so there’s nothing left to tax for that rental income. If expenses exceeded income, you might consider loss relief rules, but the basic result here is zero taxable rental income.