Capital gains of own and permanent housing: what to know?

When a person decides to sell their home, there are several bureaucratic steps to follow. Among them is the obligation to declare this amount in the IRS. If the sale operation results in a loss of value, the taxpayer does not pay tax. However, if there are capital gains, the taxpayer is subject to tax payment. Then learn how the capital gains of own and permanent housing are taxed.

How is the calculation of the capital gains of own and permanent housing?

Well, capital gains are calculated through a calculation formula that takes into account the following parameters: sale value of the property; value of the purchase of the same; currency devaluation coefficient; expenses with the acquisition and sale of the house; expenses related to the valuation of the property.

Formula for calculating the capital gains of the sale of a property: 

Capital gains = Value of Sale - (Purchase Amount x Devaluation Coefficient) - Charges Required for the Purchase and Sale of the Property - Charges with the Valuation of the Property

"Charges with buy and sale" are considered, for example, taxes, energy certificates or commissions paid to real estate. These charges only relate to the property sold.

On the other, the "charges with the appreciation of the property" all the improvements made after the acquisition that contributed to value the property. Works carried out in the 12 years preceding the sale may be used for this purpose.

If the value calculated using this calculation formula is positive, it means that there are capital gains subject to taxation. In this case, the general rule dictates that 50% of the amount is encompassed together with the other income of the taxpayer and subject to the payment of tax.

For example, imagine that you sold a property you had bought in 2010 for 200,000 euros. However, over the years, he has done some improvement works on the house, with a total cost of 5,000 euros. In 2020, he sold this same property for 250,000 euros.

To know the value of the capital gain, in addition to subtracting the charges with the works (provided you have the invoices that prove these expenses), you can also deduct the amount of taxes paid at the time of the purchase of the house you sold. At issue is the Municipal Property Transfer Tax (IMT) and stamp duty.

In what situations is there an exemption from the payment of capital gains?

Even if you made a profit from the sale of your home, you may not have to pay tax. This is because the legislation provides for some tax-free situations on this type of earnings.

• Reinvestment in the purchase of a permanent own housing 

If you use the capital gains obtained from the sale of the family home to purchase a new house for own and permanent housing within 36 months, you do not have to pay tax on them. To this end, the taxpayer should indicate in Annex G his intention to apply the capital gains in the future. In this way, its taxation is suspended.

But be note: if you only use a part of the gains obtained for the purchase of the new property, the exemption is partial, being proportional to the amount reinvested. If you have already bought a new house, but have not yet been able to sell the old property, there is no problem: you can benefit from this exemption, as long as you can sell the old house up to 24 months after the purchase of the new property.

• Real estate purchased before 1989 

In addition, the capital gains resulting from the sale of houses purchased, inherited or given before 1 January 1989 are exempt from the payment of tax.

• Exemption for people over 65 years of age 

Taxpayers over the age of 65 may also be exempt from paying capital gains from the sale of their own permanent housing. However, to do so, they will have to reinvest the profit in a life financial insurance contract, an open pension fund or the contribution to the public capitalisation scheme.

If you are thinking of buying a house and have questions about this topic, contact Habitazza and seek advice from our professionals. We guarantee follow-up in every step and guide you on all issues.