sell, house, capital gains, tax

But what is, after all, an asset? Article 10 of the IRS Code clarifies that "the gains obtained constitute capital gains that, not being considered business and professional income, capital or property, result from the onerous disposal of real rights in real property or the onerous disposal of shares and other securities".

In the real estate universe, the added value is the result of the difference between the sale value of a property (the valuation made by the finances) and the acquisition value (value referred to in the deed of the house). And also subtract the charges with the purchase and sale and the charges related to the valuation of the property (works, for example). Note that the acquisition value is still updated by applying the monetary coefficient. If the result of this operation is positive, then the capital gains of the real estate transaction are generated.

From a general out, those who bought a house for 100,000 euros and now intendto sell it for 150,000 euros, can get an added value of about 50,000 euros. And as this value is considered an income is subject to tax and will have to be declared in the IRS (Annexes G and/or G1). It should be noted that if the date of purchase of the house now sold is earlier than 1 January 1989, Annex G1 (Table 5) must be completed.  If it is later, Annex G (Table 4 ) must be completed.

Capital gains exemption: which cases are covered?

The change in the law of 2021 - inserted in the State Budget for 2021 - reduced the cases in which there is exemption from payment  of tax on property capital gains. Until 2020, an exceptional regime was in place that offered this exemption to those who used capital gains money to pay the credit for their own permanent housing, provided that the loan had been contracted by 2014. But from 2021, this scheme has ceased to apply.

Now, it is only foreseen to exempt the payment of capital gains when selling the house, if there is reinvestment in a new housing. According to the IRS Code, the following cases are exempt from capital gains:

  • If the property sold is the taxpayer's own permanent address and the capital gains are fully reinvested in the purchase, construction or rehabilitation of another own permanent dwelling. In this case, the family has 36 months (three years) to carry out the reinvestment. If you have already purchased the house before selling the old-fashioned, you have two years to inform the Tax Authorities that you will invest the capital gains to pay for the property. 
  • retired or over-65 taxpayers who invest capital gains in an insurance contract, an open pension fund ensuring a regular periodic income or in the public capitalisation scheme (retirement certificates) within six months of the sale of the property;
  • Properties acquired before 1989, the year the IRS code came into force, are also exempt from paying capital gains.

How can I minimize the payment of capital gains?

If you do not meet the conditions for exemption from payment of capital gains, you can choose to try to reduce the tax payable. There are several expenses that count towards the calculation of the tax and that can even decrease it, as explained by the General Deposit Box (CGD) in this article. To do this, you will need to include up to 12 years of invoices in the IRS statement, referring to:

  • Improvement and maintenance works of the house;
  • Fixed appliances, such as hoods, air conditioning, among others;
  • costs relating to the acquisition and disposal, such as IMT (or SISA), notary and land registration charges, expenditure on energy certification and the intermediation commission;
  • Compensation demonstrably paid for the onerous waiver of contractual positions or other rights inherent in contracts relating to those assets.

Pay capital gains for the sale of inherited properties

It is also foreseen the payment of capital gains in the case of inheritances. When the property is fully inherited in a single date, the Tax Authorities must assign it a value that will serve as a reference to calculate capital gains, if the heirs want to sell it. In the case of an inherited dwelling, it is also important to know that the date of acquisition of the property will be the date of death of the owner.

If a house was inherited by death of an ascendant in 1986, but the sharing of property took place in 1995, the date of acquisition to consider is 1986. And, because it is before 1989, the capital gains obtained are not subject to taxation in IRS, but should still be declared in Annex G1 to model 3, exemplifies CGD.

The scenario will be different if there is inheritance of parts of a house on differences dates. This can happen in cases where the property was owned by two ascendants. Here, each of the owners' death dates corresponds to a different acquisition value and a proportion of the selling value, which must be broken down in the IRS declaration in Table 4 of Annex G to Model 3, there may be parcels which should be entered in Table 5 of Annex G1, it also states.