Taxation on a capital gain realized on the sale of real estate may be levied. But it will be taxed a little, a lot or not at all, depending on how you use it and how long you keep it. Multiple details matter the day before your tax return.
With soaring real estate prices, reselling a property can make you big money. But will this gain be subject to income tax and social security contributions? Follow the leader!
A real estate capital gain can be realized during the sale for valuable consideration, therefore the sale, of a house, apartment, villa, but also of the shares of a civil real estate company (SCI) or a civil company of real estate investment (SCPI). When the real estate capital gain is taxable, the notary calculates and withholds the tax on the capital gain directly, which he then transfers to the Public Treasury.
Main residence: the jackpot!
The capital gain realized on the sale of the main residence is totally exempt from income tax, and does not bear any deduction, regardless of the amount and the duration of the residence. The tax exemption also applies to immediate and necessary outbuildings (garage, car park, parking area less than one kilometer away) if their sale occurs at the same time as that of the main residence.
If you hold your main residence through an SCI, the capital gain is limited to your share of rights in the company. (Example: if you own 60% of the shares of an SCI which holds your principal residence, the exemption is limited to 60% of the capital gain).
In all cases, the real estate capital gain is exempt from tax only if the accommodation is the principal residence of the assignor on the day of the transfer.
Pay attention to deadlines
If the accommodation is vacant due to being put up for sale, the exemption is not called into question if the sale takes place within a period of less than one year. This does not mean, as is often believed, that you always have a year to sell. The assessment of the normal selling time is a question of fact which is assessed with regard to all the circumstances of the transaction.
The tax department can thus call into question your right to exemption from the capital gain on the principal residence even though the sale takes place less than a year after you have moved if the reasons you invoke to justify a period of sale of several months are not considered relevant.
Special cases
- A retired or disabled person residing in a nursing home or in a nursing home can benefit from the exemption of the capital gain realized during the sale of his main residence if it occurs within two years of his entry into this reception structure and whether his residence has remained free of any occupation since he entered the establishment. Means tests are required to benefit from this exemption.
- For the holder of a company accommodation, this constitutes in principle the main residence. But perhaps considered as his main residence his accommodation which he owns and in which his spouse and children reside permanently.
Second home: 30 years of patience
There is no legal definition of secondary residence. According to the tax authorities, a secondary residence is any dwelling that is not a principal residence. This may be a rented accommodation, a holiday residence, a dwelling occupied by a relative, a vacant dwelling, a dwelling acquired through life annuity… When the dwelling has been held for more than of five years, the capital gain is reduced by an allowance according to the period of detention, the rate of which varies for income tax and social security contributions.
With regard to income tax, the deduction on the capital gain is set – 6% for each year of ownership from the fifth and up to the 21st, then – 4% for the 22nd year following the acquisition. . So that the income tax exemption is acquired after twenty-two full years of detention.
With respect to social contributions, the reduction is established as follows: – 1.65% for each year of detention beyond the 5th and up to the 22nd year, then – 9% for each year beyond the 22nd me. Property held for at least 30 years is therefore totally exempt from tax.
A very heavy tax
When it is taxable, the real estate capital gain bears an IR of 19% and social security contributions of 17.20%, ie a total tax of 36.20%. Added to this is a surcharge when the net taxable capital gain is greater than 50,000 euros. It ranges from 2% to 6% beyond 250,000 euros, as specified The Official Bulletin of Public Finances-Impts (BOFiP-Impts).
For taxable capital gains realized in 2022, the net amount of the capital gain must be indicated on the box 3VZ of the tax return. This capital gain, which was taxed on disposal, is not taxed a second time. If it is not taken into account for the calculation of the withholding tax rate, it is retained for the calculation of the reference tax income.
A unique exoneration case
Here is a special case of exemption which applies only once in a lifetime. Its purpose is to enable people who rent their main residence to sell a home they own in order to invest the proceeds in a main residence. These include, for example, the sale of rental accommodation, holiday accommodation, inherited accommodation, etc.
If you respect the following two legal conditions, the capital gain realized on the sale of this accommodation will be exempt from income tax and social security contributions. On the one hand, you must not have owned your main residence directly or through an intermediary during the four years preceding the sale of the accommodation and on the other hand, use the proceeds of the sale for the acquisition or construction a dwelling which will serve as a principal residence upon its acquisition or its completion in the case of a dwelling to be built.
Additional conditions to respect
Please note that the proceeds of the sale must be reinvested in the main residence within a maximum period of twenty-four months from the date of sale. Otherwise, the tax exemption is canceled by the tax authorities.
As a small subtlety, the capital gain tax exemption is limited to the fraction of the transfer price actually reused. Example: 80% of the sale price of a home is reused for the acquisition or construction of a principal residence: the exemption will be limited to 80% of the capital gain realized.
Exemption from the capital gain for the reuse of the proceeds of the sale for the acquisition or construction of the principal residence applies on request by mentioning it in the authentic deed of sale. You absolutely must report it to the notary.