What is the income tax on the sale of real estate and in which cases are you exempt from tax? When do you have to report the exemption to the tax office?
Tax rate on income from the sale of real estate
The sale of real estate is subject to income tax. The amount of tax depends on whether you are selling the property as an individual or a company.
Income tax for natural persons
Income from the sale of real estate is taxed according to § 10 of the Income Tax Act. Income tax is 15% or 23% for natural persons.
If in 2022 you had income higher than CZK 1,867,728 (48 times the gross salary), you are obliged to tax income exceeding this threshold at a 23% income tax rate.
In 2021, the so-called solidarity tax was abolished and replaced by a rate of 23%. The solidarity tax did not apply to income from the sale of real estate, however, the current 23% rate already applies to income from the sale of real estate.
The basis of the tax is the income reduced by the expenses demonstrably spent to achieve it. The income is therefore the price obtained from the sale. The cost is the amount you bought the property for. The other most common expenses include, for example, legal costs, assessments, repairs, technical evaluation, costs for a real estate agency, etc.
Example
In 2016, Mr. Gordon bought an apartment for CZK 3,000,000 and started renting it out. In 2019, he needed to invest capital in his business and therefore decided to sell the apartment. In the meantime, real estate prices rose, so he managed to sell the apartment to Mr. Novotny for CZK 3,500,000. With both transactions, Mr. Novák had costs associated with legal services, custody of the purchase price with a lawyer and a commission to a real estate agency. Mr. Novák’s total demonstrably spent expenses amounted to CZK 180,000. The tax basis is the amount 3,500,000 – 180,000 – 3,000,000 = 320,000 CZK. Mr. Gordon will include this amount in his income tax base according to §10 of the Income Tax Act. Income tax then amounts to CZK 48,000.
Income tax for legal entities
For legal entities, the income tax rate is 19%. Income from the sale of real estate is included in the income of the entire company and is thus also taken into account in the company’s tax return.
Are you considering selling your property? You start by asking us to estimate its selling price.
Exemption from income tax
Natural persons are exempt from income tax in the cases specified in § 4 of the Income Tax Act.
1) You have owned the property for 5 or 10 years, respectively
The exemption period depends on when you acquired the property.
If you acquired the property after January 1, 2021, you are exempt from income tax upon sale after 10 years from its acquisition, in accordance with the amendment to Act 586/1992 Coll. on income tax, which became effective on January 1, 2021.
If you sell real estate that you acquired before January 1, 2021, you are exempt from income tax for 5 years after its acquisition, according to Act No. 386/2020 Coll. Art. 4 paragraph 1.
According to §4 of the Income Tax Act, natural persons are exempt from real estate sales tax in the following cases.
2) You have owned and resided in the property for at least 2 years
If you have lived in the apartment or family house for at least 2 years immediately before the sale, you are exempt from the tax.
3) You will use the money from the sale to purchase your own housing needs
If you sell an apartment or a family house and use the funds to purchase housing needs (housing needs are defined in § 4b of the Income Tax Act) by the end of the tax period following the tax period in which you received the money, or if you use the amount corresponding to the funds obtained to purchase your own housing needs before by obtaining them, but first in the tax period immediately preceding the tax period in which the taxpayer obtained these funds. See §4 paragraph 1 a) of the Income Tax Act.
Example:
In January 2022, you received an amount of 3 million from the sale of the apartment. This amount will be exempt from income tax if, in the period from 1.1. 2021 to 31/12/2023 you invest the amount of 3 million to solve your housing needs.
You must report the tax exemption to the Tax Office
If you want to be exempt from income tax for the reasons mentioned in paragraph 3), you must, from 2021, submit a notice of receipt of proceeds from the sale to your tax authority. If you do not report this fact, the income tax exemption cannot apply. Details can be found in the article Tightening the conditions for exemption from income tax.
Exemption from income tax on the sale of a cooperative apartment
As a natural person, you are exempt from income tax on the sale of a cooperative apartment if you sell the apartment after 5 years from the acquisition, according to § 4 paragraph 1), letter s) of the Income Tax Act.
How to pay income tax on the sale of real estate
You will state income tax from the sale of real estate in your income tax return, which you must submit to the relevant tax authority in your place by March 31 for the past calendar year. You must also pay income tax by this date.
Thinking of selling and don’t know if you qualify for the exemption? Contact us, we will advise you.
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