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what to consider (with example)

Do you know how to declare capital gains at the IRS, if you are exempt or what expenses you can deduct? So you shouldn’t neglect reading the next lines.

Sold your house and managed to profit from it? So that profit has to be mentioned in your IRS declaration and will be subject to taxation because it is a capital gain.

In addition to property capital gains, which result from profits from real estate, they can also generate capital gains on the IRS financial investments and gains from financial investments.

How to declare capital gains in the IRS?

Capital gains in the IRS are declared in Annex G and G1, taxed capital gains and non-taxed capital gains, respectively.

capital gains

The sale of a property must be declared in Annex G and taxed at 50% of the added value, which is the result of applying the following formula:

Capital gains = sale value of the property – (purchase value of the property x monetary coefficient) – costs with purchase and sale – costs incurred with the valuation of the property (in the last 12 years).

deductible charges

In the case of real estate, something that can contribute significantly to reducing the tax payable on capital gains are the deductions for a set of expenses related, for example, to maintenance work on the property.

In addition to expenses with maintenance works, the following expenses can also be deducted from the IRS:

After deducting the expenses with the process of selling your property, and calculating the amount to be paid to Finance, you will have the real value of the profit you made from the sale of your home. Only in this way will you be able to determine the exact amount you gained from the sale of a property. Do not forget to indicate these expenses.

Practical example

Let’s assume that, in 2022, you sold a house for €200,000.00, and in 2013 you bought it for €125,000.00.

To calculate capital gains, the Tax Authorities consider the acquisition value to be the higher value between the VPT and the book value (as in the case of a sale, the higher value between the VPT and the book value).

That said, the math to do is as follows:

  • Sale value in 2022: €200,000.00;
  • Acquisition in 2013: €125,000.00;
  • Acquisition in 2022 (with inflation): €125,000.00 x 1.03 (value of the monetary coefficient corresponding to 2013) = €128,750.00. In other words, the €125,000.00 you spent in 2013 are worth €128,750.00 today.

Let’s also assume that you will have the following expenses:

  • Energy certificate: 150€;
  • Construction costs: €20,000;
  • Deed: 700€;
  • Taxes (IMT + Stamp Tax): €651.86 + €1,000 = €1,651.86.

Total deductions: €22,501.86.

After doing the math, the value of capital gains would then be: €200,000.00 – €128,750.00 – €22,501.86 = €48,748.14.

The taxation of this capital gain would be on: €48,748.14 – 50%(€48,748.14) = €24,374.07.

However, this does not mean that you will have to pay €24,374.07 to the Tax Authorities! Firstly, it is important to know that capital gains subject to tax must be included. After that, it is necessary to apply the tax rate corresponding to the IRS level where you will be situated.

Capital gains resulting from financial investments

Capital gains from financial investments resulting, for example, from trading shares, must also be declared in Annex G and will be taxed at the withholding rate of 28%, if you opt for autonomous taxation.

The Tax Authority gives taxpayers the possibility to choose whether they want the said capital gains to be taxed autonomously, or if, on the contrary, they prefer to opt for aggregation.

In other words, in this case, it will be as if the taxpayer had only one category of income and these capital gains will form part of the same “cake” to which a tax rate corresponding to the bracket in which the taxpayer’s taxable income is located will be applied. contributor.

What happens if you have a loss?

In the case of obtaining not a gain, but a loss with a financial investment, the aggregation can be useful as it allows deducting the capital gains obtained in the following two years.

For this, it will be necessary to include all income from financial investments. It cannot, for example, only include capital gains arising from trading shares, it must also include income from investment funds, bonds and time deposits, and authorize AT to access your bank accounts.

Exemptions in the taxation of capital gains in the IRS

There may be situations in which capital gains obtained are exempt from taxation, but not from declaration, which must be declared in Annex G1 – intended for non-taxed capital gains. And in what situations?

  • Onerous sale of shares (shares and shares) and other securities whose ownership the seller acquired before January 1, 1989.
  • Disposal of properties to real estate investment funds for housing lease (FIIAH) and real estate investment companies for housing lease (SIIAH) covered by the special regime approved by article 102 et seq. of Law no. 64-A/2008, of December 31th;
  • Income and gains determined as a result of the payment in fulfillment of the debtor’s assets and rights, the assignment of assets and rights of creditors and the sale of assets and rights, in insolvency proceedings that proceed to liquidation, within the scope of article 268 of the Corporate Insolvency and Recovery Code (CIRE) – (applicable to 2018 and subsequent years).

Note that, if the amount obtained from the sale of the property for permanent residence is spent on the construction, acquisition or works on a new permanent residence, then it is excluded from taxation.

In order not to see your capital gain taxed, this expense will have to be made within the 36 months following the sale that originated the capital gain or in the 24 months prior to the purchase (and declared in Table 5 of Annex G). The use of a bank loan does not count as a form of reinvestment, since this reinvestment presupposes the use of own resources.

If the reinvestment of the capital gain is partial, the capital gain initially obtained will also be partially taxed in proportion to the reinvestment, by applying the following formula:

Capital gains subject to taxation = Total capital gain x (1 – amount reinvested through own resources / amount that could be reinvested through own resources).

Article originally published in July 2019. Last updated in March 2023.

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