Conseils des Notaires - Real estate capital gains: calculation and exemptions
The capital gain realized at the time of a real estate sale is taxable to the income tax (IR) and to the social levies. However, many exemptions exist.
How is a real estate capital gain calculated ?
The real estate capital gain is taxable when it comes from a sale for a consideration: sale of a real estate or of the rights attached to it, exchange, contribution to a company, etc.
It is calculated in two stages:
the calculation of the gross capital gain,
the application of deductions.
The gross capital gain is the difference between the sale price and the acquisition price.
The selling price is the price mentioned in the deed of sale plus the charges and indemnities paid by the buyer (for example, an eviction indemnity) and minus the expenses incurred by the seller (for example, the cost of real estate diagnoses or the mortgage release fees).
As for the acquisition price, it corresponds to the purchase price or the value that appears in the declaration of inheritance or in the deed of gift . It is increased by :
acquisition costs (notary's fees, registration fees, etc.) for a fixed amount of 7.5% of the purchase price or actual costs based on receipts;
work for a fixed amount of 15% of the purchase price for a property held for more than five years or at actual costs on proof.
Example: for a purchase price of €200,000, the lump-sum assessments allow the price to be increased by €15,000 for the acquisition costs and €30,000 for the work.
To this gross capital gain are applied deductions for the length of time the property has been held.
For example, for a property held for 15 years, the seller benefits from a deduction of :
60% for IR,
16.5% for social security contributions.
For a capital gain of €40,000, only €16,000 will be subject to income tax and €33,400 to social security contributions.
To be noted
For properties located in certain "tight" supply and demand areas, an additional allowance of 70% is applicable if the sale allows for the construction of multi-family residential buildings and 85% if the majority of the property is social and/or intermediate housing. In practice, this exceptional allowance applies to sales made until December 31, 2022 (provided that the preliminary contract has acquired date certain between January 1, 2018 and December 31, 2020).
The rate of taxation of the capital gain: after deduction, the capital gain is taxed at the rate of 19% for income tax and 17.2% for social security contributions.
An additional tax is due for capital gains of more than €50,000, after deduction. It is 2% to 6% depending on the amount of the capital gain.
What are the exemptions?
There are many exemptions for capital gains on real estate, each of which is subject to specific conditions. For example, sales of principal residences, those whose price is less than €15,000 or sales to social housing organizations.
The capital gain is also exempt when the seller does not own his or her principal residence and uses the money from the sale price to acquire one or when a non-resident sells a home located in France.
In addition, retired persons and persons residing in social, medico-social, elderly or handicapped adult establishments may benefit from an exemption under income conditions.
Why consult a notary?
The notary is responsible for calculating the amount of the capital gains tax and for making the payment to the land registry. Moreover, before any transaction, he advises his clients on the choice between the lump sum and the real costs for the determination of the price and informs them about the existing exemptions.
Source : Conseils des Notaires