Rental income explained
Taxation Guide.
Understand your rental income, allowable deductions and tax.
Illustrative annual example · 2026
From rent to cash flow.
Thinking about renting out your garden home? It can be a valuable investment opportunity. This guide is designed to help you navigate your tax calculations, claim your allowable deductions and stay compliant with Revenue.
Important clarification: You might have heard that garden homes fall under the Rent-a-Room scheme, but Revenue’s guidance excludes detached self-contained units. Their income is subject to the standard rental tax rules.
A garden home can offer attractive rental income. Outperforming rent-a-room returns depends on your location, rental demand, project costs, allowable deductions and individual tax position.
This worked example starts with €20,000 annual rent (approximately €1,666.67 per month). It compares two assumed marginal tax positions. It is a guide to the calculation, not a personal tax assessment or a forecast of rental returns.
1. Expenses and allowances
| Category | Annual deduction | Assumption |
|---|---|---|
| Mortgage / loan interest | €3,500 | Qualifying rental borrowing only, subject to the applicable conditions, including RTB registration where required. Principal repayments are excluded. |
| Capital allowances | €1,000 | 12.5% a year for eight years on €8,000 of qualifying furniture and equipment. Not all fit-out or construction costs qualify. |
| Insurance | €200 | Assumed qualifying rental insurance cost. |
| RTB registration | €40 | Assumed fee; confirm the applicable charge. |
| Maintenance | €1,000 | Qualifying repairs and maintenance, excluding capital improvements. |
| Local Property Tax (LPT) | €0 | Not deductible. |
| Total tax deductions | €5,740 | €4,740 cash expenses plus €1,000 capital allowance. |
2. Tax comparison
Both scenarios assume the full €14,260 profit is subject to the stated Income Tax and USC rates.
| Category | Scenario A 20% Income Tax / 2% USC | Scenario B 40% Income Tax / 8% USC |
|---|---|---|
| Gross annual rent | €20,000.00 | €20,000.00 |
| Less allowable deductions | −€5,740.00 | −€5,740.00 |
| Taxable rental profit after allowances | €14,260.00 | €14,260.00 |
| Income Tax | €2,852.00 | €5,704.00 |
| PRSI — assumed annual Class S minimum | €650.00 | €650.00 |
| USC | €285.20 | €1,140.80 |
| Total tax and PRSI | €3,787.20 | €7,494.80 |
| Gross rent less tax and PRSI, before cash expenses | €16,212.80 | €12,505.20 |
| Effective Tax Rate (tax and PRSI ÷ gross rent) | 18.94% | 37.47% |
Does Rent-a-Room Relief apply?
Revenue’s published guidance excludes a self-contained unit that is not attached to the main residence. Therefore a detached garden home does not qualify for the rent-a-room scheme. See the Revenue’s guidance here.
This example is for illustration only. Because everyone’s tax situation is different, contact your accountant or tax advisor for calculations tailored to you.
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