Sale of real estate before 5 years and payment of PIT
Pursuant to the provisions of the Personal Income Tax Act, the sale of real estate within 5 years of its purchase is associated with the obligation to pay PIT in the amount of 19%. The 5 - year period is counted in tax years, not calendar years. This means that if the property was acquired in 2017, and an individual would like to avoid paying the tax, they will be able to sell it only in 2023.
Disposal of real estate against payment and inheritance
As a result of favorable changes in the PIT Act in force from 2019, the 5 - year period is calculated differently if the property was acquired by inheritance. The exemption of the heir from the payment of 19% PIT in the case of sale of the inherited real estate will be due five years after the inheritance has been acquired, but the five years are counted from the end of the calendar year in which the real estate was acquired or built by the testator, not the heir. This is a significant change which means in practice that most heirs will not pay income tax.
How to avoid having to pay income tax on the sale of real estate?
When selling a private property during the 5 periods referred to in the PIT Act, you can take advantage of a tax exemption, i.e. housing relief (Article 21 (1) (131) of the PIT Act). The condition for using the discount is to use the fund obtained from the sale for your own housing purposes. Thanks to the amendments to the PIT Act, in force from 2019, the taxpayer has 3 years to do so from the end of the tax year in which he sold the property.
How to define “housing expenses”?
These are the costs related to:
- Purchase of a building, apartment, land or perpetual usufruct right or a part or share in these facilities or;
- Right acquisition of a cooperative ownership right to a dwelling or participation in this right;
- Repayment of a loan or interest on them, if they were incurred before earning income from sale for consideration for purposes related to the purchase, adaptation or renovation of buildings or housing units or their parts.
- Expenses incurred for the construction, expansion, superstructure, reconstruction or renovation, as well as the adaptation of your own building, its part or your own apartment.
Beneficial changes in housing relief
As of January 1, 2022, Article 21, paragraph 30a was added to the Law, according to which the expenses mentioned in paragraph 25(2) (covered by the credit or loan payment relief) also include expenses for the payment of a credit (loan) and interest on that credit (loan) taken in connection with the property or property right being sold for the purposes specified in paragraph 25(1).
A Ministry of Finance general interpretation dated October 14, 2021, ref. DD2.8202.4.2020, makes it clear that expenses related to housing or home furnishings are a basis for using the PIT exemption under the housing relief. Such expenses include:
- built-in kitchen furniture,
- kitchen equipment, e.g. gas, electric, induction, ceramic hob, oven, dishwasher, washing machine, fridge - built-in or free-standing,
- purchase of cabinets that are part of the attachment of a kitchen sink that is complete with that sink,
- purchase of furniture, which is permanently associated with the construction object or its part, made on an individual order, i.e. built-in closets, pavilions, closet build-up,
- installation of ceiling and wall interior lighting, including LED tapes and halogen lights, excluding free-standing lamps,
- purchase of kitchen hoods - extractors and absorbers, including under-cabinet hoods.
Sale of real estate which is joint property of the spouses
The sale of an apartment by a married couple without tax consequences is possible under two conditions:
- The transaction cannot be related to the business,
- The premises may be sold after 5 years from its purchase.
Both of the above conditions must be met simultaneously.
The sale of real estate against payment may result in income tax consequences, therefore the described transactions should be preceded by a thorough analysis of the tax consequences.