Selling properties at a loss
Q&A: If there is no profit, the issue of capital gains tax does not arise.
Capital gains is a self-assessed tax – the Revenue relies on you being honest in submitting your claims and liabilities.
I bought a property as a first-time buyer for my private principal residence about 10 years ago. The purchase price was €260,000 and its value is now approximately €250,000. I have borrowings/mortgage left on property of €175,000.
If I were to sell the property , what tax if any would I have to pay? Also, do I have to show some proof it was my PPR for all 10 years or does Revenue do their own follow up on this to check it out.
I also bought a second investment property along with my brother for €320,000. Its current value is around €250,000 with borrowings/mortgage of €245,000 on it. Again, what tax would be due on this if we were to sell? It has been rented the majority of the time.
Mr B.B., email
You’ve been particularly unlucky in the property market it would appear, though at least you’re not struggling with negative equity – just about. Of course, you’re not alone. I’d imagine a lot of people selling first homes that were bought close to the peak of the property boom will be selling at a loss even now, depending on where in the State they are based. But their years of mortgage payments may well mean they are no longer actually in negative equity.
As you’ve gathered, the rules are slightly different for your own home – or principal private residence, as Revenue would call it – and any buy-to-let or investment property.
The “good” news for you is that you will not have any tax to pay – because you have made no profit.
The tax most relevant to the sale of assets such as property is capital gains tax and if there is no gain then the issue of taxation doesn’t arise. However, the implications are still slightly different for you in relation to each of the properties you own.
As far as your own home goes, you would not have to pay tax anyway as there is an exemption. And how does Revenue know? Well, capital gains is a self-assessed tax. The Revenue relies on you being honest in submitting your claims and liabilities – though it clearly has the right to check if it has any suspicion someone might be trying to pull a fast one.
If you make a gain, you do still have to file a capital gains tax return – form CG1. It provides a space for you to enter the price you sell the property – at section one: Description of Assets – but it also has a box further down – section five: Claim to Reliefs – where you also input the amount received for your principal to claim principal private residence relief.
You then exclude this figure from any capital gain – or loss – entered under sections eight and nine.
And why exclude the loss? The general rule under capital gains tax legislation is that if you cannot be charged tax for a gain on an asset sale, you equally cannot claim any loss on such a transactions against tax.
That brings us neatly to your investment property, acquired with your brother. Again, you have no gain and therefore no tax – although you will have been liable to income taxes on your rental income.
The difference here is that you can claim any capital loss against other gains made this year or in future years until the loss is fully offset. Until that point, you will not be liable to capital gains tax.
On the figures presented, you would have a loss of €70,000 on this property. Assuming the ownership is equally divided, the loss available to you for offsetting under capital gains tax rules would be €35,000.
Again, you will need to file the details on a CG1 form. If you were to sell both this year, you could use the same CG1 form.
Please send your queries to Dominic Coyle, Q&A, The Irish Times, 24-28 Tara Street, Dublin 2, or email email@example.com. This column is a reader service and is not intended to replace professional advice