When it comes to economics, a "universal" principle applies:
If you make profits or gains, the IRS, the state or whoever, levies a tax on you. Some to a greater extent, some to a lesser extent, but basically the rule is that: if you make money you have to pay tax.
The same theorem also applies in real estate:
If I buy a property and then resell it within a certain period of time ( 5 years ) drawing a profit (reselling it at a higher amount than I spent to buy it) for the state, there is a "speculative" intent so the gain falls under "miscellaneous income" section of the annual income tax return, this means a taxation to IRPEF of the difference received. Alternatively, it is possible to opt for a 26% dry tax (as of 01/01/2020 it has increased, previously it was 20%) to be paid at the same time as the sale, directly to the notary.
Real estate investors budget this item in their business plan and make purchases and sales by paying this withholding.
✔ But is it always like this?
✔ How is capital gain calculated?
✔ When is the tax paid?
In this article you will find the answers to these questions
Taxes on capital gain are paid to the notary at the time of the re-sale of the asset purchased in the previous five-year period. It is in fact the latter who is deputed to make the calculation that determines the capital gain and collect the due.
Capital gain is the difference between the value at which the asset is sold and what was spent to obtain it.
Please note: I did not write ...how much was spent to purchase it-there is a big difference!
If the capital gain were calculated in this way, you would find yourself having to pay 26% tax even on all those incidental expenses you incurred in the purchase, which would be a nonsense! (even in Italy ????)
Expenses that can contribute to reducing the capital gain are all those inherent in the property:
- Notary's fee at the time of purchase
- Taxes paid at the time of purchase
- Any invoices related to the commission paid at the time of purchase
- Parcels of professionals ( architects surveyors etc) paid for the renovation of the property
- Invoices related to the renovation of the property
- Extraordinary maintenance performed on the property (including condominiums)
All these expenses added to the price paid at purchase create the total cost of the property, which must then be subtracted from the final sale price to calculate the capital gain.
No, capital gains taxes are not always due. Cases where they do not apply are:
- When the property being sold is received by inheritance (inheritance)
- When the property is a principal residence
As you could see, selling a house is not easy.
If you need counseling or want someone to help you sell your home contact me!!!
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