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16k tax losses but no income to offset it against

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  • 16k tax losses but no income to offset it against

    I’ve previously owned a rental in Auckland that’s built up 16k of tax losses that I cannot offset against any investment income as I’ve sold the property.

    My wife and I have bought our own place to live with the proceeds and we own one rental but in her name only (bought before meeting me).

    Therefore I’ve got no investments in my name apart from KiwiSaver (which I’ve just looked up I can’t offset against).

    So what are my options here? Buy a rental that makes tax profits, shares that pay dividends or fixed interest to slowly make 16k worth of income to offset against? Does the 16k loss ever “expire” as such?

    Thanks in advance

  • #2
    An amended tax return can be filed within three years.
    Phone the tax department and talk to them.
    Don't fill out another one and send it to them.

    If you really do owe the money and can't offset it, just pay it.
    Never screw with the tax dept.
    Everything is computerized now, very little slips through the gaps.

    Your accountant may know of a way.

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    • #3
      I have taken an interest in the ringfencing rental losses policy partly because of just your position - carrying forward rental losses when the final (or only) rental is disposed of. I reckoned there would be some quite serious sticker shock for some unsuspecting rental sellers.

      A few months ago I had quite a long discussion with IRD on aspects of the policy including what happens to the carried forward loss. The answer, after a more senior staffer was consulted, was that the losses expire when the taxpayer does. So that means just carry them forward until you have an ownership interest in another rental property. You can't offset the losses against any other income, eg divvies.

      Your wife might be interested in joint ownership of her rental, at least until the losses are used up.

      I asked them to amend the info on their site but not sure if that happened. You might like to check, and if not clear the above might help you frame a question via secure email.

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      • #4
        Originally posted by artemis View Post
        The answer, after a more senior staffer was consulted, was that the losses expire when the taxpayer does.
        One would hope that applies to LTD companies as well as I understand the tax credit does not transfer if you sell the company and may actually disappear.

        www.3888444.co.nz
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        • #5
          Originally posted by artemis View Post
          I have taken an interest in the ringfencing rental losses policy partly because of just your position - carrying forward rental losses when the final (or only) rental is disposed of. I reckoned there would be some quite serious sticker shock for some unsuspecting rental sellers.

          A few months ago I had quite a long discussion with IRD on aspects of the policy including what happens to the carried forward loss. The answer, after a more senior staffer was consulted, was that the losses expire when the taxpayer does. So that means just carry them forward until you have an ownership interest in another rental property. You can't offset the losses against any other income, eg divvies.

          Your wife might be interested in joint ownership of her rental, at least until the losses are used up.

          I asked them to amend the info on their site but not sure if that happened. You might like to check, and if not clear the above might help you frame a question via secure email.
          ok perfect that makes sense just need to buy some cash flowing assets. On one income so can’t restructure loan but will look to invest in rentals and index funds in the future thanks a lot

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          • #6
            Originally posted by Keys View Post
            One would hope that applies to LTD companies as well as I understand the tax credit does not transfer if you sell the company and may actually disappear.
            I don't know Keys, as my conversation with IRD didn't go in that direction. But time to time I read about company tax losses travelling with a change of ownership, they are considered potentially valuable. Worth asking them the question though. IRD's documentation is good, they try hard, but can be complex or issues may be just covered in a buried sentence or two. I find it simpler to ask via their secure online email, or call if I'm uncertain how to phrase a query.

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            • #7
              Hi House Hunter,

              First big question - is this loss for the year ending 31/3/20? if for an earlier year, then ring fencing doesn't apply so will be so much easier to manipulate.

              Second question - If year ending 31/3/20, how did it lose $16,000. Might be worth checking this is a legitimate loss, as with interest rates being so low it will be harder to get a loss of this size, especially as you sold within the year (so some expenses won't be deductible)

              Depending on answers to above, might be possible to restructure your wife's rental.

              Ross
              Book a free chat here
              Ross Barnett - Property Accountant

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