As tax advisors we inform you how you can exempt from income tax the profits from the sale of your regular home

The Supreme Court has relaxed the criteria for enjoying this incentive.

When a taxpayer sells his regular residence, the profit obtained may be exempt from income tax if he reinvests the amount obtained in the purchase of a new regular residence. And when it comes to specifying this incentive, a recent Supreme Court ruling makes the criteria applied so far by the Treasury more flexible:

  • The Treasury only considers as reinvested the amounts actually paid for the new home. For example, if part of the price of the new home is satisfied with a loan, that part is not considered as reinvested.
  • However, the Supreme Court has established that the “amount reinvested” should be understood as the entire purchase value of the new home, regardless of the funds used. Reinvestment, therefore, is a legal act of acquiring another regular residence, regardless of the origin of the funds.

For example, if a taxpayer sells his main home for 200,000 Euros and, before two years have passed, acquires another one for 220,000, he will enjoy the incentive, even if he satisfies the new home with 170,000 Euros of his own money and with 50,000 Euros from a mortgage loan (contrary to the criterion of the Treasury, which considered that those 50,000 Euros were not counted for the purposes of reinvestment).

This ruling allows taxpayers who applied the Treasury’s criterion in an income tax return which is not yet prescribed (income tax returns from 2016 to 2019) to request the rectification and refund of undue income.

B Law & Tax International Tax & Legal Advisors.


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