This time, we focused on income tax on the sale of real estate, owned by the seller for less than 5 years. We asked tax consultants Ing. JUDr. Viera Fraňová and Ing. Marianna Zverková to summarize important points on this topic for us.
Basic information you should know if you earned income from the sale of real estate in 2022:
Income of a natural person from the sale of real estate falls under the category of "other income" according to § 8 of the Income Tax Act ("ITA") – income from the transfer of ownership of real estate; an exception is the sale of real estate that was immediately before the sale included in business assets and used to generate income from business activities according to § 6 para. 1 of the ITA or income from other self-employed activities according to § 6 para. 2 of the ITA.
Things to watch out for:
- A natural person taxes income in the calendar year in which they earned it, regardless of the year in which there was a change in ownership rights to the property (this is important, for example, in the case of payments in installments exceeding one calendar year or upon receipt of an advance payment).
- Income includes both cash payments and non-cash payments achieved through exchange (for example, the exchange of two properties with a surcharge or even without a surcharge to the other party).
- Spouses can unevenly divide income from the sale of property included in the BSM (joint marital property), except for income from the sale of property included in the business assets of one of the spouses (income will be taxed by the spouse who had the property included in the business assets last).
- Only demonstrable expenses can be deducted from income from the sale of real estate. Such expenses include, for example, the purchase price demonstrably paid for the property or the residual price according to the law (purchase price after deducting depreciations in the case of real estate included in business assets), expenses demonstrably incurred for the acquisition of real estate (including technical evaluation or interest on a mortgage or construction loan for real estate not included in business assets).
- Income from the sale of real estate is exempt from tax after 5 years from the acquisition of the property or after its removal from business assets ("fulfillment of the condition"); the exemption does not apply to income received by the taxpayer under a contract for the future sale of real estate if this contract was concluded before the fulfillment of the above condition, even if the purchase contract itself is concluded after the condition is met.
- Exemption from tax on the sale of real estate applies only to income classified as other income under § 8 of the ITA.
- Regarding income from the sale of real estate acquired by donation:
- The taxpayer claims as an expense the value of the real estate determined by a court expert at the time of the donation, if at the time of the donation the income from the sale of real estate would have been exempt from tax for the donor.
- The taxpayer claims as an expense the value equal to the purchase price determined by the donor if at the time of the donation the income from the sale of real estate would not have been exempt from tax for the donor, and it is simultaneously property excluded from depreciation or property that was not included in the business assets of the donor.
- The taxpayer claims as an expense the value equal to the residual price determined by the donor if at the time of the donation the income from the sale of real estate would not have been exempt from tax for the donor, and it is simultaneously depreciable property included in the business assets of the donor.
- Income from the transfer of ownership of real estate together with other specified income is subject to a separate tax base, to which different tax rates apply:
- 19% on that part of the tax base that does not exceed EUR 38,553.01 (applies for 2022),
- 25% on that part of the tax base that exceeds EUR 38,553.01 (applies for 2022).
- The tax base from the transfer of ownership of real estate is also the basis for calculating health insurance (basic rate 14%, reduced rate 7%).
- Income from the sale of an unfinished building not registered in the real estate cadastre is not considered income from the transfer of ownership of real estate, but is classified as "other" income according to § 8.
- When assessing tax exemption, the method of acquiring the property being sold or meeting other conditions stipulated by law is important:
- For the 5-year ownership period of real estate acquired by inheritance in the direct line or by one of the spouses, the demonstrable ownership period of the testator is also counted.
- For the 5-year ownership period of land, with effect until 09.2022, the period from the acquisition of the original land, which was replaced by a new land plot due to land consolidation (in administrative proceedings), is also counted.
- Income from the transfer of ownership of real estate issued to a entitled person under restitution laws is exempt from tax regardless of the duration of ownership or inclusion in business assets, if the income was received by the entitled person.
- Regarding income from the sale of real estate according to § 8 of the Income Tax Act, the taxpayer cannot show a tax loss (expenses are recognized only up to the amount of income).
- Expenses exceeding income according to § 8 in the year in which payments or advances for the sale of real estate are first received may be claimed in this year up to the amount of this income. If these incomes are received in subsequent years (installment payments of the purchase price), the same procedure is followed, up to the total amount that can be claimed as a tax deduction according to the law.
- The expense in the amount of the withheld shortfall in the annual settlement of health insurance from the tax base achieved from the sale of real estate is a regular tax deduction belonging to income from the sale of real estate, and the taxpayer may claim this expense by submitting a supplementary tax return.
If you have any questions on this topic, you can contact tax consultants Ing. JUDr. Viera Fraňová and Ing. Marianna Zverková (franova@esum.sk, zverkova@firemnedane.sk), or we will be happy to answer them in our Consultation: Reality - advisory on FB.
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Ing. Ľubomíra Lacková, kluc@kluc.sk
