Before Selling Your Home: How to Get the Tax Calculation Right

The sentence we hear most often during sales negotiations is: "Will there be any tax?" The answer can usually be calculated before selling, and sometimes postponing the sale by a few months completely eliminates the tax to be paid. In this article, we set up the calculation step by step.

Two separate items, two separate logics

The title deed fee is a transaction fee: it is paid on every sale, whether there is a profit or not. Capital gains tax, on the other hand, is a tax on gain: it arises only under certain conditions and only on the profit. Confusing the two leads to setting up the budget incorrectly from the start.

Title deed fee: four percent of the sale price

The fee is calculated over the sale price and is legally shared equally between the buyer and the seller. In practice, it is often left entirely to the buyer; this is a matter left to the agreement of the parties, but the responsibility legally lies with both.

Showing the fee below the actual price results in a tax loss penalty and late payment interest. It also works to the seller's disadvantage in the capital gains tax calculation — a purchase price shown low magnifies the profit in the subsequent sale.

The five-year rule: the most critical date

If you sell the real estate after five full years have passed from the date you acquired it, the gain you obtain is not subject to income tax. If you sell it before the five years are up, the difference between the two is considered a gain and is taxed according to the income tax tariff.

When the period starts is not as obvious as thought. It runs from the date of registration in the title deed. In residences under construction, since registration is done after the occupancy permit, the period usually starts from registration, not the contract date. This is the trap most frequently fallen into by those who buy off-plan and plan to sell early.

Indexing: profit arising from inflation is not taxed

The purchase price enters the calculation by being updated with the D-PPI until the month preceding the month in which the sale is made. This is a vital correction in a high-inflation environment: the profit that appears large nominally shrinks significantly after being indexed, and sometimes disappears entirely.

Calculations made without indexing show the tax to be paid much higher than it actually is. This wrong calculation is the reason why many people give up on selling.

Expenses that can be added to the cost

• Title deed fee share paid during purchase
• Real estate commission
• Valuation report and appraisal fees
• Documentable renovation and improvement expenses
• Notary and translation expenses related to the sale

The keyword here is "documentable". An expense without an invoice or receipt, no matter how real, cannot be deducted from the tax base. Our first advice to homeowners who have renovations done is to keep the invoices — many people pay the price for not having thought of this at the moment of sale.

Exemption and tariff

After deducting the indexed cost and expenses, the annual exemption is deducted from the remaining amount. If there is any remainder, the income tax tariff is applied. The tariff is progressive: the tax base is taxed in brackets, and the highest rate is not applied to the whole of it. This distinction is also frequently confused.

Situations that do not generate tax

• No capital gains tax arises from the sale of real estate acquired through inheritance.
• The same rule applies to real estate acquired through donation.
• If the indexed cost is above the sale price, no gain arises.

The fact that no capital gains tax arises in inheritance and donation does not eliminate the inheritance and transfer tax liability; that is a separate tax.

Declaration and payment schedule

The annual income tax return is filed in March of the year following the year in which the sale is made. The tax is paid in two equal installments, in March and July. Even if a sale was made at a loss, it is proper to document the calculation and declare it when necessary.

The explanations here are for general information. Each file has its own unique details; consult your financial advisor before taking action.