The tax credit for capital income deficits – the Tax Administration makes the deduction on your behalf
The credit for a deficit in the capital-income category is among the automatic deductions that the Tax Administration will enter in your tax assessment if you are entitled to it. As an individual taxpayer, you can be entitled to the credit if you received income during the tax year from investments and capital, and you paid tax-deductible expenses supporting that income, and the expenses were higher than the income itself.
For example, your expenses are high if you own a rental apartment and you paid for its renovations, and by the year’s end, you received less rent from your tenant who lives in the apartment than the total cost of the renovations.
This gives rise to a deficit in your capital-income category. You are now entitled to a tax credit, which will benefit you by reducing your income taxes on capital income and also on earned income (= on your earnings, such as wages and salaries).
When the Tax Administration has sent you the tax decision for the year, look for Amounts credited from taxes and charges to see the amount of the credit.
How much can be credited?
- The credit is 30% of the actual deficit in the taxpayer’s capital income.
- Maximum credit is €1,400 per year.
If you have children under 18, the maximum credit is higher:
- If a child is in the care of either yourself alone or you and your spouse, the credit will increase by €400. This way, the maximum credit rises to €1,800.
- If you have 2 or more children the total credit will increase by €800. This way, the maximum credit can rise to €2,200.
No, it is not necessary. The Tax Administration gives the credit to the parent/spouse whose income tax on earnings is higher. This concerns the State income tax, and the credit is given in an automatic process.
You may prefer that the parent earning less would get the increased tax credit relating to having children under 18. If so, you need to ask for this when you submit your tax return. Fill in the space “Credit for the deficit in capital income and the child increase of the deficit” on the tax return, and indicate the number of children.
You can submit the demand for an increased credit
- In MyTax under Other deductions – Child increase to deficit credit and transfer to spouse
- On Form 50B Capital income and deductions.
If there are more than one children in your care and custody, you and your spouse can share the “child increase” of the credit, which will result in €400 of increased tax credit to both of you. In this case, the tax rules require sharing the credit half-and-half. For example, you cannot ask for €200 for one and €600 for the other spouse.
In the case of a separated or divorced couple, the parent who the child lives with would be the only parent entitled to the credit.
Credit transferred between the spouses
When your taxes are assessed for the year, the credit can be transferred
- for the part that you cannot use in your personal tax assessment, taking account of the annual maximum amount of the credit. The Tax Administration will transfer this part to your spouse in an automatic process, and it requires no request by the taxpayer,
- or alternatively, as the entire tax credit when it cannot be given to you when your taxes are assessed. This situation will arise if no income tax on earnings is levied, or if some tax is levied but it is not high enough to allow you to benefit from the tax credit. This transfer is only made on request by the taxpayer, which you can make
- In MyTax under Other deductions – Child increase to deficit credit and transfer to spouse.
- On Form 50B, Capital income and deductions, section “Credit for a deficit in capital income and child increase thereof”.
- The request must be submitted before the Tax Administration has finished the assessment process of your taxes for the tax year.
- If no transfer of the credit is requested, the Tax Administration will instead make a record of an allowable loss in the capital-income category. The loss amount will be carried forward to the following 10 tax years, and the Tax Administration will subtract it from your future capital income during those years.
Example: Jonathan and Fiona are the parents of one child younger than 18 years of age. Jonathan’s tax on earned income is €15,000 for the entire tax year. In addition to earned income, Jonathan also received some capital income during the year. Due to various expenses, the deficit in Jonathan’s capital-income category is €11,000. Fiona has no capital income deficit at all.
For Jonathan, based on the €11,000 deficit above, the 30-percent portion – i.e. the creditable deficit – would be €3,300. However, the maximum credit available is €1,400. Because the credit can be transferred from one spouse to the other, Fiona’s credit (€1,400) is transferred to Jonathan because Fiona does not have any deficit.
In addition to the above, Jonathan’s tax assessment is further relieved by the increase of the credit based on the child. This way, the maximum credit will be €3,200 (Jonathan’s personal maximum credit €1,400 + Fiona’s unused credit €1,400 + the child increase €400).
The Tax Administration will subtract the €3,200 directly from Jonathan’s earned-income tax. The result is a tax decreased to €11,800 (€15,000 – €3,200).
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