In addition to the real estate transfer tax, it is also common to pay tax on capital gains when selling property. Specifically, this refers to the payment of income tax on capital gains.
Capital gains are regulated by the Personal Income Tax Act (ZDoh-2). The taxation applies to the disposal of real estate, irrespective of whether the property was sold in its original state or after alterations. In simple terms, the tax obligation remains, regardless of whether you have renovated the apartment or constructed a house on the land in the interim.
When selling real estate, the property’s value at the time of acquisition and its value at the time of sale are considered. The taxable base is derived from the calculated difference.
The tax rate depends on the duration of ownership. Initially set at 25%, the tax rate decreases by 5% for every five years the property has been held.
| DURATION OF OWNERSHIP | TAX RATE |
| 0-5 years | 25% |
| 5-10 years | 20% |
| 10-15 years | 15% |
| more than 15 years | 0% |
Permanent Residence and Other Specifics
There are several additional specifics that apply to the assessment of income tax on capital gains.
The most significant is the exemption from paying income tax on capital gains if the owner sells a property where they have maintained their permanent residence and have actually lived for the past three years. This exemption is not applicable if the property was used for business purposes or rented out.
As indicated in the table above, income tax is not due on capital gains from the disposal of real estate after 15 years of ownership. If you have owned the property for 15 years or more, you will not be required to pay income tax on the capital gains.
Certain methods of transferring real estate are also exempt from income tax. For instance, tax is not applicable in cases such as the transfer of property from a deceased person to an heir, the transfer of property under a lifetime maintenance agreement, a gift contract with a stipulation for death, a usufruct agreement, transfers mandated by legal measures, compulsory measures, or transfers to a borrower or pledgee.
Additionally, the taxable base can be reduced. It is not merely the difference between the purchase price and the sale price; it must be adjusted for standard expenses, actual costs, and also account for the payment of real estate transfer tax.
Procedure from Signing the Sale Agreement to Tax Payment
The seller must submit a declaration for the assessment of advance income tax on capital gains from the sale of real estate to the local tax office within 15 days of signing the sales agreement.
Unlike the real estate transfer tax, there is no specified deadline for the tax office to issue the income tax assessment on capital gains. As a result, the process may take longer. It is possible that the tax assessment may be issued only after the sale is finalized and the buyer is registered in the land registry.
