Capital gains on real estate: find out if you are exempt or how much you have to pay

In this article we explain what capital gains generated by the sale of real estate are, how to obtain exemption and calculate the tax payable.

What are capital gains on real estate?

Real estate capital gains refer to the profit made on the sale of a property, i.e. the difference between the sale price and the cost of acquiring the property (taking into account purchase costs, building work and other related expenses). In practice, this means that if you sell your house for more than you paid for it when you bought it, the difference represents a capital gain.

For example, if you bought a house for 200,000 euros and sold it for 250,000 euros, you made a capital gain of 50,000 euros, representing the gain on the initial investment.

Is the IRS levied on all capital gains?

As a rule, only 50% of the capital gains obtained from the sale of real estate is subject to IRS, and the amount is included with other annual income, which influences the applicable IRS bracket.

However, there are exceptions: if the property has benefited from non-refundable state support for purchase or works of more than 30% of the asset value, or if it is sold before 10 years of this support have passed, the tax will be levied on 100% of the value of the capital gains.

Can capital gains be exempt from personal income tax?

Yes, it is possible to be exempt from IRS in some situations. For example, if the capital gains are reinvested in the purchase of a new permanent home within three years or used to repay a mortgage (yours or a descendant’s), there is no taxation on capital gains.

What expenses can be deducted from capital gains?

• Energy certificate.
• Municipal Property Transfer Tax (IMT).
• Stamp Duty (IS).
• Real estate commission.
• Solicitors’ fees and deeds.
• Upgrading works carried out over the last 12 years.

How to declare capital gains in the IRS?

You must include the sale in Annex G (properties acquired after January 1989) or Annex G1 (properties before that date) in the tax return for the year of the sale.

For more information, consult the guidelines of the IRS Code and the Tax Authority to make the most of the tax benefits available.

The content presented does not dispense with consulting public or private entities specializing in each matter.