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Certain losses may be set against all income. Where applicable, the taxpayer must make an election to inform the Revenue of their intention. Without action losses will be stored and may only be used against future profits from the same source.
For example a sole trader makes a loss. He may either elect to set this loss against his other income or keep it to set against future profits from that trade. The decision will depend on a number of factors.
If the other income is low anyway, the loss may be wasted because the income is already covered by other deductions and allowances. It may also be better to hold on to the loss if the income is expected to be taxed at the higher rate in a later year. On the other hand, the loss will be worth less in real terms the longer it is kept unused.
Losses from the following sources may be set against other income:
Sole Trade.
Partnership.
Furnished Holiday Lettings.
Other property losses but restricted to the amount of the loss that relates to a claim for capital allowances (in other words it is rare for other property losses to be allowed against other income)
Capital losses (from Capital Gains section) (Capital Assets - Losses and other information)
Foreign property losses but restricted to the amount of the loss that relates to a claim for capital allowances.
It is not possible to elect for part of a loss to be set against other income and part to be kept for future profits. The choices are all or nothing.
To set losses against other income, the user must enter the amount of loss to set against other income. A gross deduction is given in the tax computation. If the losses exceed the income available, the excess is wasted and lost.