Almost all transactions are taxed and it is difficult to escape the control of the treasury. However, sometimes there are taxpayers who are exempt from paying taxes. In the case of the sale of a home, the capital gains obtained may be exempt when the money is reinvested in the purchase of another habitual home or in its rehabilitation. Of course, almost nobody today is free from paying the municipal capital gain, except if you sold at a loss.
Specifically, when a person sells his habitual residence, that profit will not have to be declared in the IRPF if he has reinvested the amount obtained in the purchase of another habitual house or in the rehabilitation of the house that will be his home. In this way, taxes ranging from 19% to 23% of the profit obtained are saved.
The gains obtained must be integrated into the tax base of savings and will be taxed at a fixed rate of 19% up to 6,000 euros, 21% (from 6,000 to 50,000 euros) and 23% (from 50,000 euros onwards).
In case the taxpayer has signed a mortgage to buy a new house, then the total amount obtained in the transmission will be considered the value of the sale less the principal of the loan pending amortization.
Another group of taxpayers exempt from paying income tax on the sale of their home are those over 65 years of age. If they sold a property last year, they may qualify for some tax benefits depending on the type of property and the percentage of ownership they had. If the dwelling is habitual, the exemption is 100% and if the ownership is shared, the exemption will only be applicable to the owner over 65 years of age with respect to the part of the house that belongs to him.
If the house sold is not the usual one, those over 65 may not pay taxes on the profit obtained if it is reinvested in an annuity. The maximum amount that can be used for life annuity is 240,000 euros and the reinvestment must be made within six months.
Another group that is exempt from paying personal income tax for the sale of their habitual residence is that of people in a situation of severe dependency or high dependency in accordance with the Law for the promotion of personal autonomy and care for people in a situation of dependency.
What if you want to buy a new construction home?.
The Central Economic-Administrative Court (TEAC) establishes a period of two years to finish the works and acquire the new property. That is, two years after the transfer of the house or two years before said sale. In the latter case, in order for the sale to be exempt from taxation, it would be necessary to apply for a mortgage on the home and subsequently cancel it after the sale of the old home without exceeding the established period of two years.
It is necessary to be very attentive to the different problems that may arise when enjoying the exemption:
- Forgetting to mention in the statement that the amount obtained from the sale of the home has been reinvested: In this case, the Treasury considers that the reinvestment exemption is a tax option. Therefore, if when declaring the profit obtained, it is not mentioned that the amount has been reinvested, the Treasury will consider that the taxpayer has chosen not to apply the exemption. And this option can no longer be modified once the tax declaration period ends (July 2 for the 2017 Personal Income Tax). The worst thing is that some Courts of Justice follow this criteria of the Treasury.
- Not to reinvest exactly the amount obtained in the sale: As the Law requires that the reinvestment must be of the amount obtained in the sale, the Treasury considered that if this had not been the case (for example, if a new home was purchased before selling the above), the exemption did not proceed. This is a criterion, however, declared illegal by TEAC itself, in a resolution issued in 2014.
- How long can the Treasury check ?: Lastly, the Treasury considers that the statute of limitations in these cases is counted since 2 years have passed since the sale of the previous habitual residence (maximum term to reinvest). And this, even if the taxpayer does not exhaust this term and has bought the new home much earlier. Against this criterion, there are judicial pronouncements, for example from the TSJ of Madrid, which consider that the statute of limitations begins when the taxpayer, once the previous home has been sold, buys a new one.
What if I have sold the house at a loss ?:
If money has been lost with the sale of a house, this negative performance should not be taxed, but it must be included in the personal income tax return. In addition, the losses can be compensated with the capital gains obtained in the year, thanks to funds, shares or other properties. The result is a reduction in the tax bill.
But if the result is still negative, then it will be compensated with the positive balance of the income from movable capital included in the tax base of savings for the year, with a limit of 20% of said balance.
If after this compensation there is still a negative balance, it will be compensated in the following four years in the same order that we have indicated.
The municipal capital gain still remains to be paid
Everyone who sells with profits will have to pay this municipal tax, unless they sell with losses, as established by the Constitutional Court in May 2017. Currently, the tax amendment has not yet been approved. The maximum coefficients that can then be applied by the municipalities will also be changed.
The Supreme Court has made it clear that it will only be possible to get rid of paying the tax in cases where it has been sold at a loss. In a judgment issued in July 2018, it declared that the articles that regulate the tax are only unconstitutional when they encumber transfers at a loss, but not when there has been a gain in the transmission.
Of course, if the profit obtained is so small that the tax that comes out to pay absorbs a large part or all of said profit, the tax could be unconstitutional due to confiscation. This issue has already been raised with the Constitutional Court and will shortly be resolved.