In this article I will tell you how I was about to lose over €7000 in tax deductions to the owner of a property that I followed up with a sale. If you have done work on a property for which you are taking tax deductions and are thinking of selling, this article is for you.
What work can be taken into deduction
In early 2020 I oversaw the sale of a property on Lake Garda, a beautiful penthouse in the center with a panoramic terrace overlooking the lake, which a young German couple fell in love with. Quite complicated negotiation, but in the end the buyers were able to fulfill their desire to have an aperitif overlooking the lake, in the tranquility of their own home in Italy.
But let's come to the heart of the matter.
The property, in order to be sold, needed some construction work to obtain its fitness for use, including:
- The replacement of the heating system.
- The making of a dormer window.
- The redoing of the bathroom and the electrical system.
All these works could be deducted by the seller (some at 65% others at 50%) according to current regulations.
What happens to tax deductions on sale
These works, agreed upon with the buyer, were the responsibility of the seller and had to be finished before the deed. Once the work was finished, with the buyer's approval, we went to the notary of choice, an impressive associated firm from Bolzano with 3 notaries inside, stipulation room with an 8-meter black table and various paintings and artwork hanging throughout the office. The buyers had had the legal negotiations followed by a lawyer to whom they had given power of attorney for the purchase, charged with verifying the goodness of the transaction.
In short, a lot of professionals to follow up on a purchase and sale.
On the day of the deed we stipulated and then went to eat a nice plate of Trentini cold cuts with a nice cold medium beer, the kind that drops the droplet of condensation on the outside of the glass 🙂
The clause to be included in the deed for not giving up tax deductions
It was only a few months later that the error showed up.
One day the seller of the property (accountant) calls me and asks.
"Ale, but we specified in the deed that the deductions of the work done remained in favor of the seller?"
…
Oh God
I check with the notary and indeed the clause reserving the benefit in question for the owner had not been included in the contract of sale.
What clause?
This one!
Pursuant to Art. 16a of Presidential Decree Dec. 22, 1986, no. 917 (Consolidated Income Tax Act), as amended and supplemented, and in particular of the Decree Law of 04/06/2013 no. 63, the parties also agree that it remains in favor of the alienating party Mr. ... the right to deduct any tax credits against the Treasury relating to tax incentives (deduction from IRPEF) provided by the above legislation.
Unfortunately, none of the parties involved (including me) had thought about this aspect, with the result that about €7000 worth of work that could be deducted on tax returns had been passed on to the buyers.
What to do now?
What to do if you have given away deductions by mistake in the sale
Consulting with the notary who had done the deed, fortunately, we realized that the damage was remediable: the parties, by making a notarial deed of correction, could specify that the deductions would remain with the seller and no longer be transferred to the buyer.
Total cost of the operation?
500 €
I am of the old school"he who errs pays," and although the error may be contestable from the point of view of responsibility, I have decided to bear the expense together with the owner to remedy this shortcoming by contributing 50% of the expense.
Don't run into the same mistake I did, too; when you buy or sell a house, check if any building work has been done that enjoys tax deductions and make it clear right away to whom these benefits will accrue!
Thank you for reading this article, remember if you need an appraisal of your property you can find all the information you need here!
