Claiming rental losses
Question from Terry updated on 7th October 2020:
We're selling our rental property after three years ownership (no brightline applicable) and have a carried forward loss to claim. How can we realise this from IRD ? Is it an end of year thing or can it be a one-off claim ? Tenants have trashed property (again) so we're out. We're not speculators and this was / is our only investment property. Bloomin' pain in the ***. We try to get ahead, but we've had two lots of tenants over three years who have been absolutely appalling. I also wonder if the property management company has some liability here?
Our expert Matthew Gilligan responded:
I am sorry to hear about your troubles as a landlord. Unfortunately, I do not think that I am going to have good news for you here. If the tax loss you are talking about has arisen in the income year beginning 1 April 2019 or subsequently, then it is subject to the new ring-fencing rules. Under the ring-fencing rules it is possible that a ring-fenced tax loss can be released and offset against other taxable income, but only if the sale of the property itself is subject to tax.
On the face of it, the sale of your property is not going to be subject to tax because as you point out, the bright-line rule is not applicable if you have owned it for more than three years. If so, the ring-fenced loss cannot be released and offset against personal income from other sources. At best it can be carried forward and attached to any future investment property, but that does not sound like a likelihood given your unfortunate experience. If the loss relates to income years prior to 1 April 2019, then it can be offset against income from other sources.
You may have recourse against the property management company if they have failed in their contractual obligations to you and it has caused you loss. I suggest you talk to your lawyer.
Matthew heads GRA's specialist property and asset planning division. He helps clients create optimal tax structures and build wealth through property. He has an extensive buy-to-hold property portfolio, is currently involved in over a dozen developments, and is author of two books - Property 101 and Tax Structures 101.Search the Ask an Expert archive
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