Does anyone know what happens if you make a capital loss on a property (when you sell it)?
Can you use this loss, on your Income Tax Return, to reduce your taxable income figure? [eh]
thanks,
pasandbecI am not an accountant but I thought the loss carried over to offset any future capital gain. I didn’t think it was useable against income tax.
Robert Bou-Hamdan
Mortgage AdviserI also am not an accountant so please check this out. However I was talking to my account only yesterday on this. And this is my understanding of what he told me.
Yes a CAPTAL LOSS can be used to offset a CAPITAL gain but not against income. The capital loss can also be carried forward to future tax years (note plural) though I do not know how many years!
However, if it can be shown that it is not CAPITAL but INCOME loss then the whole game changes. This might be the case if you had purcahsed the property with the INTENTION of renovating it and then sold if for less than the purchase price + the cost of renovation (hence the loss). In this case the loss can be carried forward to the next year (not more) and be offset against you normal income.
PeterO
Would this work in the case of a rental property?? where the SALE price is less than the VALUE (VALUATION) of the property at the time that it started to be rented out??
or does it only work if sale price is less than the PURCHASE PRICE (what I paid for it)??
pasandbec
Only applies to purchase price.
Robert Bou-Hamdan
Mortgage Adviserthat’s strange, considering Capital Gains Tax is based on the value at thetime the place started being rented out. Would of thought Capital Loss would be the same….
Sorry, I missed that bit. My comment referred to a property that was an investment from day one.
If you convert your PPOR into an investment property, you also get the benefit of not having to pay CGT for 6 years (if I remember correctly) or until you move into another PPOR.
I think this question should be put to an accountant. Sorry I can’t be of more help.
Robert Bou-Hamdan
Mortgage AdviserWhat you can do with losses also depends on the structure the property is owned in, if any.
If it’s in a trust, then you can’t offset the losses against your own income or capital gains, as losses can’t be distributed from a trust.
There are also issues with carrying losses forward in a trust.
GP
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