Selling a property for more than it cost generates a capital gain, which is generally taxed under IRS (Income Tax for individuals). However, the law provides an important exemption for those who reinvest in a new primary and permanent residence. Understanding the rules can save a lot of money.
How capital gains are calculated
Capital gain is the difference between the sale value and the acquisition value, updated by a monetary devaluation coefficient. Acquisition costs and valorisation works carried out in the last twelve years can also be added to the acquisition value, provided they are duly documented.
How much is taxed
For residents, only 50 percent of real estate capital gains are considered for IRS purposes, then added to other income and taxed at general rates. This 50 percent rule is crucial for the final calculation.
The reinvestment exemption
If the property sold was your primary and permanent residence, the capital gain may be exempt if you reinvest the proceeds in the purchase, construction, or improvement of another primary and permanent residence. The reinvestment must occur within the legal deadlines, typically between 24 months before and 36 months after the sale.
Partial reinvestment
If you only reinvest part of the value, the exemption is proportional. The unreinvested portion is taxed under general terms.
Special cases
There are specific rules for individuals over 65 and retirees who reinvest in retirement savings products, and for situations involving the repayment of housing loans. Each case has specific conditions that need to be verified.
What to document
Keep deeds, invoices for works, and proof of charges. Without documentation, you lose the possibility of increasing the acquisition value and pay more tax.
At Grupo Your, we simulate the tax impact before the sale and help structure the reinvestment to take advantage of the exemption. If you are thinking of selling a house, talk to us before signing the deed.
