Write off profit on rental income against farm loss

[Tomjim]

I have 2 houses rented out which are making a profit

Is it possible to write off the profit made on the rental income from the houses against a farming loss brought forward from previous year, there will be a small profit on the farm this year.

I also have normal PAYE income

 

[WindUp]

If you make a trading or professional loss, you may reduce your income from all sources by the amount of the loss. Any unused balance may be carried forward against your trading or professional income for the next and later tax years-- see tax consolidations act s381

 

[trg]

Correct me if I'm wrong but as I understand it it is only the current year loss that can be written off against current year profit. You can use a farming loss carried forward from a prior year against a current year rental profit and P60. If you elect not to offset a farming loss and istead carry it forward then same applies i.e. you can only offset against future farm profits.

As far as I am aware (I confess to not knowing the relevant tax act) you can only offset farm losses against other income in the year in which it arises for 3 consecutive years. In year 4 you must carry it forward and use for future farm profits. In years 5/6/7 you can offset the farm losses again then against current year profits.

 

[mandelbrot]

As far as I am aware (I confess to not knowing the relevant tax act) you can only offset farm losses against other income in the year in which it arises for 3 consecutive years. In year 4 you must carry it forward and use for future farm profits. In years 5/6/7 you can offset the farm losses again then against current year profits.

S.662 TCA 97 is the relevant provision in the legislation.

It provides that:
A farming or market gardening loss does not qualify for loss relief unless it is shown that, for the accounting period in which the loss was incurred, the farming or market gardening was being engaged in on a commercial basis and with a view to being profitable.

It further provides that:
Loss relief is not given for a farming or market gardening loss in any accounting period if a loss (computed without regard to capital allowances) was incurred in that accounting period and in each accounting period wholly or partly within the prior 3 years.

So once you hit year 4 of losses Revenue will withdraw the loss relief, and if you still have losses in years 5, 6 and 7 I doubt you'll find Revenue too amenible towards the idea that the farming activity is being engaged in on a commercial basis...

The only reason you would be claiming the relief under S.381 is that you have other income, the tax on which you wish to shelter by setting the farming loss off against it, and TBH if that's the case for 4 (or 7!) years then it becomes clear you're only a hobby farmer...

 

[shej]

I also have a PAYE income and two rental houses making a loss!!!, can the loss be offset aginst my PAYE?
Thanks

 

[WindUp]

Fraid not Shej

 

[trg]

TBH if that's the case for 4 (or 7!) years then it becomes clear you're only a hobby farmer...

Would dispute this in particular with Farming given the high level of capital expenditure involved in start-up years. With premiums decreasing and cost of finance together with capital allowances its quite likely that farmers will have a tax loss in start up years. If it can be proven that the investment is with a view to getting the enterprise to profitability then I would be confident that Revenue would be happy enough.

If you are a big PAYE earner and attempting to put personal expenditure through the farm and thereby getting a refund of PAYE tax deducted then this would not wash obviously.

 

[T McGibney]

Would dispute this in particular with Farming given the high level of capital expenditure involved in start-up years. With premiums decreasing and cost of finance together with capital allowances its quite likely that farmers will have a tax loss in start up years.

The 'hobby farmer' rule refers solely to profits before capital allowances, as has mentioned earlier.