Income tax

Income tax in real estate sell

Among other tax obligations, income tax is more complex, but very important, as it enters into the very decision of whether to sell the property now or wait a while longer. Therefore, it is necessary to pay the necessary attention and know its basic principles! 

The obligation of income tax is given by Act No. 586/1992 Coll. (§10). The tax rate is then a general 15% . (§16). And the taxpayer is the one who generated the income. So possibly you, as the seller. In addition, the calculation of this tax is not entirely simple and it pays to pay attention to it, although the vast majority of owners who sell real estate and it is not their business, do not pay the tax in the end. Fines and penalties for badly claimed tax, although as a result zero can still be there! 

The tax base is the selling price minus what was provably spent on the acquisition of real estate (If it was consideration transfer, then the price you paid plus other costs connected (REA commission, attorney expenses etc.. In the case of gratuitous transfer, ie inheritance, gift, etc., such price is determined by chartered surveyor report made for the time of the acquisition.) In general, you will never pay 15% tax on the entire sale price! In the first place you will subtract the purchase price of the property (report on price) from the sale price. And only from such a difference will you calculate the tax.     

Example 1:

You inherited the property and now want to sell it. You will find a buyer for CZK 3,000,000 and you need to calculate the tax. Even though you acquired the property "for free", the tax is not CZK 450,000! (15% of CZK 3,000,000 ) In such a case, it is necessary to call in an chartered surveyor who will make an report of the usual price of the real estate at the time when you acquired the real estate. (If such was developed for the purposes of inheritance, this will suffice - but beware, a simplified assessment of the market price offered by Realtors is not enough here! It must be an chartered surveyor report. - The one with a ,,round stamp”). Such an report is then based, for example, on CZK 2,000,000. Tax should therefore be 15% of the 1 000 000 CZK(The difference between selling price and the report price), ie 150 000Kč.

However, this would still not be entirely fair to such a common heir, and therefore there is another substantial group of legal provisions that make it possible to avoid the tax completely legally. And these are tax exemptions. (§4)

“Taxpayer will be exempt from tax if:

- In the house or unit, the seller resided for at least 2 years before the sale.

- The seller owned the property for at least 10 years, regardless of who lives in it. (If you have acquired a real estate by inheritance from your parents / grandparents / spouse, the period of ownership of the deceased who left the property to you, is also counted.)

- You have lived in the house or unit for less than two years, you have owned it for less than 10 years, but you will use the money from the sale to meet your own housing needs. (You buy another property for your own living, you pay a mortgage for other real estate in which you live, etc.)” 

Example 2:

4 years ago you have a bought the apartment using mortgage (CZK 3 500 000 apartment price, 3 000 000 CZK mortgage. Left to pay for mortgage now: 2 400 000 CZK) three years ago, you also received a gift of another apartment from an uncle who bought it for you in the small town that you have decided to rent out (report on the price here was CZK 800 000). Now you have inherited from your parents a small house far away in the village where they lived all their lives. (The report for inheritance is for the price of CZK 3,800,000.) You have decided to sell the real estates and buy your dream house for CZK 8 000 000. What tax will you pay if you managed to find a buyer for your apartment for CZK 4 500 000, for a rented apartment after your uncle for CZK 1 200 000, and for a house after parents for CZK 3 800 000? Try to calculate this example yourself - all the information contained in this article is enough for this task! (If you come up with a result that is other than CZK 0 - count again, or contact me and we can clarify it together! ????)