When you sell your home you normally have to pay personal income tax on the capital gain you make, but there is a way to avoid having to pay this tax. We tell you about it.
The exemption for reinvestment in the principal residence
If you wish to sell your property, you should be aware that the tax authorities consider that you are making a profit on it, and therefore have to pay a tax. In a nutshell, this profit is measured by the difference between the purchase price and the sale price.
But there are a number of exceptions to the general rule.
On the one hand, we have the sale of the main residence by the over 65s. However, the most widely used is the exemption for reinvestment in your primary residence. This means that you do not have to pay tax if you sell your home to buy another one, as long as it is your main residence.
In order to be able to carry out this operation, the Treasury establishes a series of conditions:
- Have resided in the previous home for at least three years in a row. This period can be shorter and still be considered the habitual residence for the tax authorities. In case of marriage, divorce, job transfer, change of employment and similar situations, three years living in the house is not necessary.
- As for the new home, in order for it to also be your habitual residence, you must live in it within 12 months from the purchase or from the completion of its construction. This advantage also applies when you buy a house under construction through a cooperative.
- If it is a house that you have owned for a long time, donated or inherited, you can also apply the exemption if you need to renovate it.
- El time you have to buy another house after selling yours is two years.
When you have financed the purchase of the new house with a mortgage and then sell the house you were living in, this is a case of partial reinvestment.
The exemption would only apply to the mortgage instalments you pay during the two years before or after the sale of the property. If you want to take advantage of the full exemption, you would have to pay off the mortgage you signed within the two-year period stipulated by the tax authorities.
Otherwise, it would be a partial reinvestment.
So, if your plan is to sell your habitual residence and not have to pay personal income tax, it is advisable to buy a new home, either new or second-hand. You can find multiple options at IPG.