My husband and I are selling our house (we haven’t lived there for 10 years, it is rented out) and we are set to make a capital loss of approximately €14,000 after selling expenses. We do not have any chargeable gains to offset this loss against. I am wondering if we can offset it against PAYE? Or do we just carry it forward indefinitely?
Mrs VN, email
It’s neither one nor the other as far as I can see – although you may be entitled to some relief.
First let’s get rid of the PAYE issue. No asset sale of this sort raises income tax issues, nor can it be set against income tax – PAYE or otherwise.
That brings us back to capital gains – and losses.
The corollary in Revenue's interpretation is that any asset that cannot be liable for capital gains is also disbarred from being used to accumulate capital losses
You say this is your house, although you haven't lived there for the past 10 years. That implies that it was, at least for a good chunk of your ownership of it, the family home or, in Revenue parlance, the principal private residence.
This is important because the principal private residence is exempt from capital gains tax, regardless of how much it increases in value during your ownership. That’s generally good news for homeowners and can be a valuable tax relief in normal times when property prices are rising.
However, the corollary in Revenue’s interpretation is that any asset that cannot be liable for capital gains is also disbarred from being used to accumulate capital losses.
But, as you note, this property was rented out for at least a part of your ownership and, as you would be liable to capital gains on the sale of an investment property, you should also be able to claim losses against other capital gains arising in the year the property is sold or carry them forward against future gains if they are not used up in the year of sale.
The issue is, how do you assess the loss? You note that you will have lost €14,000 on the property but that is from its original purchase and for part of that time it was exempted as your family home.
It seems to me that you would have to assess the value of the property when it first became an investment property – not when you first bought it – and measure any eventual loss against that, possibly lower figure.
More practically, when Revenue looks to tax gains on a property that was a family home for a time, and then an investment property, it does so pro-rata. So if the property was sold for €100,000 more than you initially paid for it but was rented out for half of the period of ownership, 50 per cent of that gain – €50,000 – would be taxed in broad terms.
On that basis, you would need to work out what proportion of the entire period of ownership the 10 years of renting amounts to and you might then be allowed to claim that fraction of the overall €14,000 loss as a capital loss.
In fact the overall loss before you start working your fractions will be less than €14,000 because you cannot use expenses to increase a loss, only to reduce a gain.
Please send your queries to Dominic Coyle, Q&A, The Irish Times, 24-28 Tara Street, Dublin 2, or email dcoyle@irishtimes.com. This column is a reader service and is not intended to replace professional advice.
