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Section 23 entering rules in Form 11

  • 16-11-2009 11:05am
    #1
    Registered Users, Registered Users 2 Posts: 739 ✭✭✭


    I was looking at my friends tax return last year for 2007 Income. His accountant seems to have entered in Section 23 relief on a new property in the year as a balancing figure to bring the tax to Zero. Instead of entering the higher, full amount of Section 23 obtained, to show a loss. So that in this year I can just carry the loss forward.

    Am I right in saying that the revenue nomally expect you to put in the full amount of Section 23 relief in year of acquisition and then just carry on the losses until it is used up?

    Thanks.


Comments

  • Registered Users, Registered Users 2 Posts: 765 ✭✭✭Ticktactoe


    riptide wrote: »
    I was looking at my friends tax return last year for 2007 Income. His accountant seems to have entered in Section 23 relief on a new property in the year as a balancing figure to bring the tax to Zero. Instead of entering the higher, full amount of Section 23 obtained, to show a loss. So that in this year I can just carry the loss forward.

    Am I right in saying that the revenue nomally expect you to put in the full amount of Section 23 relief in year of acquisition and then just carry on the losses until it is used up?

    Thanks.
    As far as i can remember it is apportioned over the ten years.


  • Registered Users, Registered Users 2 Posts: 739 ✭✭✭riptide


    Ticktactoe wrote: »
    As far as i can remember it is apportioned over the ten years.

    No. Thats not the case. You can put as much as you can against all rental income in the years as they arise. In reality you could use it all in a single year.


  • Registered Users, Registered Users 2 Posts: 562 ✭✭✭Kingkong


    I have a mixture of non Section 23 property and Section 23 property.

    My Accountant over the last number of years has used my section relief against to top rate only and carried the balance forward.

    In effect the relief was used in this priority.

    1st against any profits of the actual S23 property
    2nd against other rental profits which would be subject to tax at the marginal rate.

    Is this correct, Im finding it diffcult to locate the provision in the TCA.

    Many Thanks


  • Registered Users, Registered Users 2 Posts: 169 ✭✭MBateson


    In the first year, you put the entire amount of S23 relief into the designated box. This usually creates a loss which wipes out all rental income for the year which means no income tax or PRSI etc. in the first year.

    You carry the loss forward and enter as such in later years. This is used to reduce rental income for tax purposes but still leaves an exposure to PRSI and income levys.

    In the 2011 budget, the S23 relief is being severely restricted. Any loss forward can only be used against the S23 property. If you haven't used up your losses within 10 years, you lose the unused portion. If you sell the property within 10 years, you can't transfer the S23 relief to the buyer and you still have a clawback of the relief you've availed of.


  • Closed Accounts Posts: 1,483 ✭✭✭ManFromAtlantis


    i suppose its pointless asking "can it be legal? " what they are doing re not allowing all rental to be offset as was on offer when property was being purchased.


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  • Registered Users, Registered Users 2 Posts: 562 ✭✭✭Kingkong


    Thanks. Do you know if the s23 loss must be used where there is other rental profits or can the indivdual use the loss selectively i.e. Only at income liable to 42% and carry the remaining forwars?


  • Registered Users, Registered Users 2 Posts: 4,686 ✭✭✭barneystinson


    Kingkong wrote: »
    Thanks. Do you know if the s23 loss must be used where there is other rental profits or can the indivdual use the loss selectively i.e. Only at income liable to 42% and carry the remaining forwars?

    Simple answer, NO, you cannot use rental losses selectively. The S.23 relief creates a rental loss, which is carried forward and relieved in the same way as any other Case V loss.

    http://www.google.ie/url?sa=t&source=web&cd=1&ved=0CB4QFjAA&url=http%3A%2F%2Fwww.revenue.ie%2Fen%2Ftax%2Fit%2Fleaflets%2Fs23.pdf&rct=j&q=section%2023%20relief&ei=tnkCTcC7HsmYOvbr2aYB&usg=AFQjCNFdHUsL5e3ZtYGUe9jCvMs0GFY9sA&sig2=zXKbCiazbwuMFGUV7uOAJQ&cad=rja

    9.

    How section 23 relief is granted

    Section 6 contains details of how to calculate the amount of the relief. The full amount of the
    relief is deducted from the rental income of the particular property in the first year of letting,
    together with other allowable deductions such as management expenses and interest relief etc.
    If, as is most likely, the deductions exceed the rental income from the property, the excess can
    be deducted from other Irish rental income for that year. Any remaining excess deductions are
    treated as a rental loss for that first year and can be carried forward against any Irish rental
    income arising in later years until the loss is used up.
    If an individual does not have sufficient
    rental income to absorb a rental loss, the carry forward of the rental loss can continue beyond
    the 10-year period following the first letting of the property under a qualifying lease. Section
    23 relief cannot be set against rental income from properties outside Ireland or against income
    from an individual’s employment, profession, trade, investment or sale of capital assets.
    Where more than one person has incurred qualifying expenditure on a property, both the relief
    and the rental income/expenses are apportioned among those persons according to the amount
    of the expenditure incurred by each person. For example, if a property is purchased by a
    number of people for €400,000 and one person pays €100,000 of this amount, he or she is
    entitled to 25% of the section 23 relief and 25% of the rental income/expenses available in
    respect of the property.
    The following example shows how the relief is granted:

    A Guide to Section 23 Relief

    17

    Example
    In August 2005 Mr Ryan purchased a house from a builder for €379,000. The builder’s
    construction costs were €298,000 and the site cost was €43,000. The formula in section 6.2 is
    used to calculate the section 23 qualifying expenditure:

    €379,000 X

    €298,000
    €298,000 + €43,000

    = €331,208

    The amount of the qualifying expenditure is €331,208. This amount can be deducted from the
    gross rent receivable from the property. The property is let from September 2006.

    Gross rent 2006
    8,000
    Less;
    Insurance
    400
    Interest
    300
    Section 23 relief
    331,208
    Total deductions
    331,908
    Rental Loss
    (323,908)

    This loss of €323,908 is available for set off against all Irish rental income in the year in
    which it arises. Any excess can be carried forward against Irish rental income for later years.

    Mr Ryan owns two other properties for which he completed a 2006 rental computation.

    Property 1

    Property 2

    Property 3

    (Section 23 property)
    Loss
    (€323,908)
    Profit
    €20,000
    €30,000
    €50,000 of the loss of €323,908 is set against the profit arising from properties 2 and 3, so no
    tax is payable on Mr. Ryan’s rental income for 2006. A loss of €273,908 can be carried
    forward against Mr. Ryan’s Irish rental income in later years.


  • Registered Users, Registered Users 2 Posts: 169 ✭✭MBateson


    i suppose its pointless asking "can it be legal? " what they are doing re not allowing all rental to be offset as was on offer when property was being purchased.

    I believe some of the bigger accountancy firms are compiling a list of clients to organise a legal challenge.


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