I procured a pair of connecting semi-detached residences at a cost of €550,000 in one bid at an auction last year. My initial intent was to retain possession of both, but then I had a change of heart and opted to put one on the market while using the other as a rental property.
The property up for sale was recently agreed upon for a total sum of €350,000. It’s worth noting that initially both houses were filed on a single folio until they were subsequently divided post-sale.
The concern here is whether or not I will be subjected to capital gains tax (CGT) given that I haven’t made any profit from my original investment. To address this, one must evaluate the respective expenditure connected to the property being sold. As section 557 of the Taxes Consolidated Act stipulates, there are specific regulations when it comes to determining the permissible portion of the cost in circumstances where a section of an asset is disposed of.
When accounting for the “gain” following its subsequent sale, the total acquisition cost of the property put forth for sale is deemed an acceptable deduction. The calculation is proportionally determined based on the value of the sold property over the value of the retained property.
The unsold property then holds on to the remaining expenditure. As such, the question of whether or not one is liable for CGT having sold adjoining properties arises.
Approximations place the base cost evenly if the market value of the two houses aligns closely, making your base cost around €275,000. Factoring out any other costs, you’d face a taxable gain approximating €75,000 which would then be subjected to a 33% CGT rate.
The source of this counsel is Suzanne O’Neill, a tax partner at RSM Ireland.