Understanding Tax in the Last Year of Ownership


I am selling a rental property that I bought in 2006 and lived in for several years before renting it. There is no CGT [capital gains tax] like it’s worth less than I originally paid.

My question is regarding the last year I rent the property. You indicated that the last year of ownership is considered owner-occupied whether it is rented or vacant.

If I sell my property this year, does that mean is there no tax on rental income when I file my tax return for 2022?

Mrs. EK, e-mail

The article about calculating capital gains on a property that was once a family home and then rented out prompted many subsequent queries. Many, including yours, share a common characteristic: even if you’ve owned the properties for a number of years, there won’t be any profit to worry about because those homes still have negative equity.

This is a sign of how dramatic the financial crash and the resulting impact on house prices has been. More than a decade later, many people still haven’t recovered or have seen the price of their property go back even to what they originally paid.

Of course, a lot depends on the date of purchase. And, as usual, it was those who arrived last, those who bought in the year before the crash, who paid the most inflated bubble prices and are most at risk of finding themselves still underwater. in terms of price.

But it is important to realize that there is a significant difference between taxing gains (or losses) and taxing rents.

Many of these properties have been rented out, often because the owners needed to expand for family reasons or because they had moved with their jobs.

People often confuse taxes and assume that because they pay, everything offsets each other, especially when multiple taxes apply to the same thing, such as property. But that’s really not the case.

Different taxes

In this case there is a tax on income and a tax on any capital gains and they follow parallel paths but they do not interact – and they certainly cannot be pitted against each other to reduce an overall tax burden.

In terms of capital, you have made no gain: the property is worth less now than when you bought it. So, as you note, there will be no capital gains tax. As the name suggests, only winnings can be taxed. It would be adding insult to injury to do anything else.

Whatever loss you incurred on this property, you can use it to offset other capital gains, such as the sale of another property, shares, painting or other well, but not the income.

First, the offset takes place with other gains you have made in the year, so you only pay tax on the year’s net capital gain.

If you have no capital gains this year, or not enough to fully absorb any loss on this property, the residual amount is carried forward to the next year and beyond until you have deducted it from capital gains.

If you can’t wait for this property to return to profit, it may allow you to sell other assets at a profit in a tax-efficient way.

But, unlike the gain position, you cannot use the expenses incurred by buying or selling the property to increase your loss, so you will be paid out to some extent.

With respect to income, which is taxed on an annual basis as it is due. And while the last year of ownership can be deducted for capital gains purposes because it is deemed to be owner-occupied regardless of actual status, under income tax rules any rent that paid to you during that year must be accounted for and returned. for tax (less allowable deductions) in the same way as you have since you started renting the property.

You’re right that there are some contradictions in the approach, but that’s a consequence of the ever-changing nature of tax law. There have long been differences in the approach to capital taxes versus income taxes. The situation you describe in your query would be a good way to soften the blow of your loss, but it is not feasible.

Please send questions to Dominic Coyle, Q&A, The Irish Times, 24-28 Tara Street, Dublin 2, or email [email protected] This column is a reading service and is not intended to replace professional advice.

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