Real Estate Sale Income Tax – How to File It Properly

In the previous article, we examined the taxes paid upon property transfer. Now, we’re going to concentrate on how to file a property sale income tax and how to pay it.

When is the tax on real estate sale income paid

Every seller should take notice here, as the sale income tax concerns them; however, numerous exceptions exist that could exempt them from paying it, namely the following:

• The seller has owned the property for no less than 5 years. This period is extended to 10 years for any property obtained after 1 Jan 2021.
• The above condition has already been fulfilled by a previous owner of whom the current seller is the heir apparent.
• The seller has themselves occupied the property for at least two years prior to selling it.
• The seller invests the received sum in a home of their own.

Tip: All the exemptions are discussed in more detail in this article about the taxes on property transfer.

You must file the tax even if you don’t pay it

Do you fulfil any of the above conditions? Then you needn’t pay the tax; however, you are obligated to inform the tax office about the sale. As of 2015, any tax-free income greater than 5 million crowns must be reported. Real estate was exempt from this decree until the end of 2020, prior to which the tax office was allowed to collect the information about property sales from the Land Register. As of 1 Jan 2021, however, property sale income must be reported along with the evidence of meeting one of the aforesaid conditions. And, you must always report the sale of a coop flat, regardless of the amount of your profit.

Circumventing or forgetting about these obligations will by no means pay off; you may be fined up to 15% of the income that was either unreported or reported belatedly, although the fines tend to be lower in practice.

When you must pay the tax on property sale income

If none of the aforementioned conditions concern you, you’ll need to pay the tax. Selling property counts as any other income and as such must be included in the tax return, which is normally handed in no later than 31 March of the subsequent year. The real estate sale income is regulated by the Czech National Council’s Income Revenue Act no. 586/1992, where it is described among other income in § 10.

Upon selling property, filing the tax return is mandatory unless you are exempted from the tax. This includes retired persons or any other persons with no other taxable income. The PAYE by your employer doesn’t suffice.

Tax return

When completing the tax return form, you will want to direct your attention to Appendix 2, where you are to state the selling price along with the purchase price, plus any expenditures connected with the sale. Your net profit establishes the tax base. In other words, the basis of assessment is calculated as the difference between the total selling price and the sum of the purchase price and the transfer costs.

To elaborate, you ought to include among your expenditures not only the property purchase price (the money you paid for it), but also any outlays connected with selling the property: The cleaning or modification costs, emptying it, the brokerage fees, fees for contract drafting or the preparation of other documents, the escrow fee, and so on. You may also include the amount invested in its reconstruction. Bear in mind, however, that this incorporates only such expenses that resulted in an increased value of the property, e.g., the building insulation, the installation of new windows, etc.

What to do if you didn’t purchase the property? In the case of an inheritance, the purchasing price is substituted by the amount stated in the legal decision, whereas a donated property needs to be appraised by a court-sworn expert and dated to the day of its transfer to the new owner. The value will then stand in place of the purchasing price in the tax return. Again, it can be supplemented with the expenses spent on the reconstruction and selling process.

Tax remissions

Tax remissions normally serve to relieve the taxation of employees. However, if your income doesn’t depend upon your employment, you may take advantage of tax remissions when selling property. Aside from the basic taxpayer remission, others exist as well:

• Tuition remission,
• nursery school fees,
• disabled remission (ZTP/P),
• remission for a husband or wife with no taxable income.

In a similar fashion, you may deduct the following items:

• mortgage loan interest,
• building savings interest,
• your life or pension insurance,
• expenses on taking qualification exams,
• labour union membership fees

Entrust us with selling your property and tax filing

We’ll protect any and all of your rights while meeting the legal requirements. We know which contracts to draft, what to file at the Land Register office and how to file and pay all the taxes. We’ll walk you through the whole process or any of its individual steps, and we’ll make sure everything is done properly.