If you have sold or are planning to sell your property, it is likely that you do not know the practical effect on your income statement. Did you know, for example, that you may be exempt from tax?
The sale of your own permanent house may be exempt from tax!
The advantage is the term that is usually associated with the word tax. This is simply the difference between the sale price and the purchase price of your home. However, for tax purposes, this income is only considered by half.
Therefore, the tax consequence of this type of transaction is directly related to the result of the sale, characteristics of the property, purpose of the sale, associated expenses and, above all, to the completion of your declaration.
There are expenses that you can deduct from the gain you made from selling your house. This gain can also be exempt from tax if you intend to buy another house.
All expenses proven by invoices, related to the sale and acquisition of the property, are accepted to reduce the tax. For example:
- Energy performance certificate expenses;
- Notarial fees;
- Municipal Property Tax (IMI) and Stamp Duty;
- Expenses incurred in the last 12 years associated with the property's conservation and appreciation.
- Acquisitions prior to 1989 - If the property was acquired before January 1, 1989, the gain from this sale is not subject to tax.
- Reinvestment (Own and permanent housing) - If the sale amount is used to purchase another house or land for construction, the capital gain may not be subject to tax. Here we must respect the maximum limit of 36 months for reinvestment.
- If the seller is over 65 years old, the amount resulting from the sale, of his own permanent home, can be reinvested in an insurance contract or in a pension fund.
If you sell your own permanent home between 2015 and 2020, and a loan agreement signed before 2015 is associated with it, it may not be taxed on the capital gain of your sale.
To that end, you must ensure that the value of this sale is fully used to repay your loan and that you do not own another property.
Roberto sold his own permanent home. He acquired this house in 2001 and, for the respective acquisition, he resorted to a loan of € 160,000. Now, he intends to acquire a house and contacted UWU Solutions to validate his exclusion from taxation. For the analysis, he indicated that:
- Acquisition Value: € 200 000
- Aquisition year: 2001
- Year of sale: 2019
- Sale value: € 270 000
- Expenses with the sale and acquisition of the property: € 7 200
- Encargos com obras do imóvel: € 12 500
For the sake of simplicity, we will not consider devaluation coefficients. Therefore, Roberto's capital gain will be:
- Capital gain = 270,000 - (200,000 + 7,200 + 12,500) = € 50,300
Additionally, we know that, for his new acquisition, Roberto will ask for a € 250,000 loan.
- Data for reinvestment:
- Value of the new acquisition: € 300.000
- New bank loan: € 250.000
- Value to reinvest: 270,000 – 160,000 = € 110,000
- Value effectively reinvested: 300,000 – 250,000 = € 50,000
In other words, after the sale of his house, and the respective loan settlement, Roberto has € 110,000 to reinvest.
However, with the purchase of his new home, he took out a new loan and therefore only reinvests €50,000. We can conclude that our client only reinvested 45% of the amount he would have to reinvest (€ 110,000).
Therefore, instead of being taxed on the total capital gain (€50,300), only 55% of this will be taxed! Let's see:
- Taxable capital gain= 55% × 50,300 = € 27,665
- 27,665 × 50% = € 13,832.50
We can admit that Roberto obtained a tax saving of more than 6 thousand euros!