Capital gains tax

Ignorantia iuris quique nocet - ignorance of the law hurts everyone

During real-estate sale, the selling parties should pay attention to the capital gains tax. Oftentimes the sellers will disregard this tax obligation, usually out of ignorance of its existence. However, the Tax Administration will account for these taxes and the taxpayer will then risk having misdemeanor proceedings filed against them due to tax evasion.

The definition of capital gains and losses

The income tax Law states that capital gains is the difference between the selling and purchasing price which occurs when transferring real-estate ownership rights.

The tax rate starts at 15%.

We will use a simple example to illustrate: the seller purchased their apartment for 100.000,00eur, and then sold it for 110,000,00eur. Therefore, their capital gains amount to 10.000,00eur. By applying the 15% capital gains tax rate, the capital gain amounts to 1,500eur. In case that the sales price was lower than the purchase price, capital loss is calculated instead.

The law also defines which differences in ownership rights are not considered capital gains (for example when obtained through inheritance, when transferred between married parties or direct blood relatives and so on). The sellers should especially note that the difference created by transferring real-estate ownership is not considered capital gains, if they’ve had the right to do so in their power continuously for at least 10 years.

Determining capital gains

The law regulates what is considered a sales price (the contracted price, i.e. the market price which is established by the Tax Administration if they estimate that the contracted price is lower than the market price) and what is considered the purchase price (which is the price for which the taxpayer purchased the real-estate, the price for which they’ve constructed it or the gifting price for which the gift-giver or bestowerer has gained those rights, if the rights are established through the lifetime care contract, the market price which is taken as the baseline for absolute rights transfer tax in the moment it was obtained by the taxpayer)

Breaking down capital gains and losses

It’s important to mention that the Law also defines a situation in which the capital gains achieved by selling one right with capital loss achieved by selling another right can be broken down, under the condition that the capital loss came before the capital gain.

Tax exemption and tax credit

There is another law-defined situation when the capital gains tax is exempt - when the funds gained by real-estate sale are invested into resolving one's own housing situation within 90 days of the sale date, or resolving the housing situation of a family member. Even when investing into the resolution of the housing situation within 12 months after the date of real-estate sale, you may apply for a paid tax refund. If you only invest a part of the funds gained by selling the real-estate, the tax obligation is reduced accordingly.

Of all the taxes that go with real-estate sale and purchase, the capital gains tax seems the most complicated. You should pay close attention to all legal intricacies that regulate it and take advantage of all the law-defined benefits regarding tax exemption or tax credit.