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Taxes on the sale of real estate

Taxes on the sale of real estate

Once the property is sold, one of the few certainties in life is that the relevant taxes need to be sorted out. After the sale of the property, three types of tax must be settled:

- Real estate acquisition tax

- Income tax

- Real estate tax

Real estate acquisition tax

The obligation to pay property tax was abolished in 2020. The Covid pandemic has at least brought us something positive! [1] 

Income tax

The obligation to pay income tax is governed by Act No. 586/1992 Coll. (§10). The general tax rate there stated is 15% (§16). And a taxpayer is someone who generates income so potentially this is you, the seller. In addition, the calculation of this tax is not entirely simple and you should pay attention to it, although the vast majority of owners who sell real estate as individuals not as a business do not pay this tax in the end. But fines and penalties are possible if you do not declare anything, so even if you think your payable tax is zero you still have to do a return. Once again, I refer you to the tax calculator, which will do the hard work for you and is constantly updated according to the latest laws, so you can rely on it!

 

The tax base is the selling price minus what was demonstrably spent on the acquisition of real estate (if the property was bought, then this is the price plus other costs; in the case of gratuitous acquisition, i.e. an inheritance, a gift, etc., such a price is determined by expert opinion.) In general, you will never pay 15% tax on the entire sale price! First of all, you subtract the purchase price of the property (price assessment) from the sale price. And you only calculate tax on the  difference.

 

However, this would still not be entirely fair to a typical heir, and therefore there is another substantial group of legal provisions that make it possible to avoid the tax completely legally, which are (as set out in §4),

Sellers will be exempt from tax if:

- The seller resided in the house or unit for at least two years before the sale.

- You have lived in the house or unit for less than two years, but you will use the proceeds from the sale to satisfy your own housing needs (You buy another property for your own home, pay off a mortgage on another property in which you live, etc.)

- You have owned the property for at least five years, regardless of who lives in it (If you acquired the property by inheritance from your parents/spouse, the period of ownership of the deceased who left the property to you or after which you inherited it in this way is also used in the calculation).

You can find more information, including examples of calculations, in the section, "Income tax on the sale of real estate", which deals with the issue in more depth.

Real estate tax

Real estate tax is the tax that is paid annually if you own a property. After the sale, you shouldn't have to worry about post-sale issues, should you? Absolutely not! But it is good to be aware that it is possible that, for example, you sold the property and yet a year later you receive an invoice from the Tax Office demanding you pay up!

Real estate tax is governed by Act No. 338/1992 Coll. It is a law distinct from others dealing only with various types of real estate and the calculation of tax on them. In this instance, I have to say that it is such a complicated process that, instead of giving an example, I will just refer you to my tax calculator, which can also tell you how big the real estate tax should be in your case. Why I mention it here is to stress the fact that the tax period is very important for this particular tax.

§12c states that the tax period is a calendar year and changes in the process are not taken into account. Translated into English, this means that the person who owns the property on 1 January pays the tax for the whole year. If you are the owner of the property on  1 January, you will pay the tax for the whole year regardless of whether you transfer the property on 3 January or 29 December. The new owner is then obliged to register for tax with the tax office by 31 January of the following year after acquiring the property. However, if they fail to do so, the tax office may ask you to pay and you will then have to prove that you are not the owner and that someone else has not fulfilled their obligation (which is luckily not so complicated thanks to the cadastre, but it's still extra work!). Therefore, it is good to think about this tax in terms of other people and in January ensure that the buyer of your property has actually registered. I personally have a calendar reminder for that and I also offer to sort out registration for this tax for buyers.  If you use me to help with your transfer then you can get this worry off your mind.

In the end, it is possible to summarize post-sale tax issues thus: You do not have to worry too much about any taxes other than income tax and whether or not you have to pay it can be worked out using my calculator or, if you're still not sure, by contacting me directly!


Něco pozitivního nám ,,pandemie“ Covidu tak přecijen přinesla!

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