Real estate sale income tax
The first tax we need to mention concerns the seller. It’s the income tax, which is sometimes incorrectly referred to as the real estate sale income tax. It amounts to 15% of the profit, i.e., of the difference between the purchase price and sale price of the property in question. The expenses connected with the sale (the brokerage fee, drafting the contracts, experts’ opinions…) or property reconstruction (only the modifications that increase the property value count, such as insulating the building or the installation of new windows) may be deducted from the selling price. It’s even possible that the purchase price, after all the sale and reconstruction costs are taken into account, will exceed the sale price – in that case, you naturally needn’t pay anything, as there was no profit made.
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Before you start calculating how much the tax will cost you, familiarize yourself with the exemptions, because one might apply to you. Actually, a substantial number of sellers are exempted every year upon meeting any one of the following conditions:
- The property has been in your possession for the last 5 or 10 years. The longer period applies to property obtained after 1 Jan 2021, the shorter one to real estate acquired before that date. The period is reset to zero with each transfer including a property donation, with the sole exception of heirs apparent – here, the time for which the house or flat was in the possession of the previous owner counts as if it were in theirs. This regulation concerns freehold as well as coop flats.
- You have been occupying the property yourself for at least 2 years prior to its sale. The home needn’t be your permanent residence; you are merely required to provide evidence that you have indeed been living there. You may substantiate this with Internet or utility bills in your name, with the mail delivered to you at the given address, etc. Bear in mind, however, that this includes freehold flats only; cooperatively owned flats are excluded from this condition.
- You haven’t been occupying the property for more than 2 years, but you invest the whole profit from the sale on your own home within one year of its transfer. The home may not only come in the usual form of a new house, flat or parcel, but also as any other object fit for permanent occupation, or even its reconstruction. Another way to meet this condition is to spend the profit on repaying the loan that was taken to purchase the home. And last but not least, there is the option to spend the whole amount on another home in the year prior to the sale; of course, you are required to inform the tax office and subsequently provide it with relevant evidence.
Keep in mind that only physical persons are exempt; the tax must always be paid for any company-owned property. If you’re a natural person meeting one of the aforementioned conditions, you needn’t state the property sale income in your tax return at all.
Tip: Find out what has changed with the abolition of the real estate acquisition tax and what that signifies for you in the future.
Property sale and VAT
If you’re among those VAT payers who don’t meet any of the conditions above, you’ll also need to pay the Value Added Tax amounting to 21% of the property value (15% with social housing).
When isn’t the VAT paid?
- The seller is a natural person, exempt from VAT,
- when selling a house or flat constructed or substantially reconstructed (that is, official approval must have been given) more than 5 years prior to the transaction.
- When not selling a building parcel or a plot that constitutes an indivisible whole with the building, unless that building itself is subject to VAT.
And when is it paid?
When the seller is a VAT payer selling:
- A house or flat built or substantially reconstructed (with approbation) no later than 5 years prior to the sale,
- a parcel constituting an indivisible whole along with the building,
- a building parcel.
Real estate tax
While the two aforementioned taxes are only paid once, all property owners must pay the real estate property tax annually. Following from that, it’s the buyer who is obligated to pay it after the property has been transferred to their name. The tax must be paid by any person who owns any real estate on 1 Jan. Said person should file the tax on their own accord by handing in the tax return at their local tax office no later than on 31 January of the year when the tax is paid for the first time. It’s not necessary to file the tax return for the following years; only to pay the tax itself.
The seller may wish to cancel the real estate property tax in their name after the property transfer. While it holds true that the tax office usually learns of the new owner when they file the tax and automatically deregister the former owner as a result, it is not advised to remain idle. To avoid unnecessary risks, the sellers ought to deregister themselves and substantiate this with documents from the Land Register.
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