I bought a house in 2005 for €238,000 and am in the process of selling it for €215,000. I will not pay capital gains tax (CGT) as I am not making anything from it. I am, in fact, making a €23,000 loss on the sale of the house, not including the €20,000 or so I put into the house at the start.
Can I carry this loss forward to offset against the sale of another house that I own that has accrued a profit? This second house was purchased in 1999 for £71,000 (€90,170). This would sell now for €180,000 so is subject to CGT. Can I offset the €23,000 loss from the first house against the second house? Or is there anything that can be done with the loss at all?
Mr A.G., email
As with so many of these things, it depends. In this case, the key issue is whether either of these two properties is your home, ie in Revenue terms, your principal private residence.
In the ordinary course of events, the position with capital gains tax is very simple. You pay capital gains at 33 per cent on any gain made from the sale of assets in a year over the exemption threshold of €1,270.
If you had made a loss on the disposal of another asset in the same year (or earlier), that loss can be offset against the gain accruing. Unfortunately, if the loss is crystallised in a subsequent year, you cannot offset against a previous year’s gain – though you can, and do, retain the loss going forward until it is fully offset against any subsequent gains.
There is no four-year limit on using the losses as applies with so many other areas in dealings with the Revenue.
So far, so good. If you are selling two properties in the one year – one at a gain and one at a loss – then, in general, they can be offset against one another.
In your case, you would have a €23,000 loss on one property and a €90,000-odd gain on the other. That would leave you with a €67,000 net gain which, after allowing for the annual CGT exemption, would mean a bill of €22,000 for capital gains.
But that all depends on the status of the two properties. If they are both buy-to-let or investment properties, there is no problem and the position is as outlined above.
If, however, one is your home, then it falls out of the equation.
Private residences
Capital gains tax law provides an exemption for principal private residences. In general, this is good news for homeowners: it means that they do not pay any tax on the increased value of their homes when they go to sell their home. But the flip side of the CGT exemption is that homeowners cannot avail of an offset on any loss they make on the principal private residence.
The logic is that to allow a loss would be facilitating a one-way bet. The position in tax law is that if you cannot be taxed on a gain, you cannot benefit from a loss.
While this is not generally an issue for homeowners, it clearly has come into sharp focus since the financial crash with many people still in negative equity, depending on when they bought their homes.
So, if the house with the loss was your family home, you cannot offset the loss now or at any future time. If, however, the second property was the family home, you are exempt from tax on the substantial gain in value in that property – saving yourself €22,000 or more – and you still have the loss from the other investment property to offset against future gains. It all depends on your circumstances.
A final word of caution: don’t imagine you can simply alter which property was your main home to suit this tax situation. Given property tax records down the years and income tax records on any rent received, Revenue would quickly become aware of the true situation and would not look kindly on any re-engineering of the situation.
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.
