We speak of capital gain in the context of a real estate sale when the resale price is higher than the purchase price. The gain caused by the resale is thus considered as a capital gain since the value has increased without the property having undergone any significant changes.
Except in the case of exemption, the capital gain on immovable property is taxable when it concerns the following situations:
- the sale of real estate: apartment, house, land, etc. ;
- the sale of rights attached to a property: usufruct, bare ownership, easements, etc. ;
- the sale of property or rights through a real estate company (SCI) or a real estate investment fund (REIT);
- the exchange of goods, the sharing or contribution in society.
The real estate capital gain is taxed by income tax and social security contributions such as the generalized social contribution (CSG), the contribution to the repayment of the social debt (CRDS), the social levy, the additional contribution or the solidarity levy.
How is a real estate capital gain calculated?
To calculate the amount of a real estate capital gain, the purchase price must be subtracted from the sale price of the property. The purchase price corresponds to the price paid at the time of purchase, indicated in the deed of sale, to which are added the acquisition costs as well as the expenses of work. We find in acquisition fees, also called notary fees:
- the fees and emoluments of the public officer responsible for drafting the authentic deed of sale;
- disbursements or expenses made on behalf of the purchaser;
- duties and taxes.
These acquisition costs are estimated for their actual amount if the owner can justify them or for a lump sum of 7.5% of the purchase price. In addition, the expenditure for works corresponds to its amount allowed subject to justification. Otherwise, a lump sum of 15% of the purchase price is applied, provided that the property has been owned for more than five years. In the context of an inheritance, the purchase price corresponds to the value of the inheritance tax. The same applies if the property is received by donation.
The transfer price, or sale price, corresponds to the price indicated on the authentic deed of sale. It is possible to deduct from this amount the costs related to the sale and, in particular, the cost of mandatory real estate provided that supporting documents are provided.
There are allowances for the application of tax or social security contributions on real estate capital gains that apply depending on the duration of ownership of the property. With regard to income tax, the allowance is 6% between the 5th and 22nd year, then 4% beyond the 22nd year of detention. For social security contributions, the allowance is 1.65% between the 5th and 22nd year, 1.60% for the 22nd year and 0.9% beyond the 22nd year of detention.
Tax exemption on capital gains on immovable property
Owners may be exempt from real estate capital gains tax in certain cases. Indeed, if the dwelling offered for sale was used as a principal residence at the time of the sale, the owner is exempt from capital gains tax.
There are other cases that allow an exemption from real estate capital gains tax, depending on the situation of the seller, the buyer or even the property itself.
The seller’s situation is taken into account if:
- He or she is in receipt of a retirement pension or resides in a nursing home for the elderly.
- He has a mobility inclusion card or resides in a reception institution for adults with disabilities.
- He is not resident in France.
- He has not owned his principal residence for four years, but he owns a secondary residence for which he can be exempted.
We also look at the situation of the buyer:
- It is an organization responsible for social housing or a private operator that undertakes to build social housing.
- He was expropriated following a declaration of public utility and reused his compensation to buy or build property.
- It is an individual who exercises his right of abandonment and transfers his property, provided that his compensation is reused within one year.
Finally, the situation of the property is taken into account:
- It is a dwelling, other than the principal residence, the sale price of which will be reinvested in the purchase or construction of a principal residence within two years.
- It is a property owned for more than 22 years (exemption for income tax) or for more than 30 years (exemption for social security contributions).
These exceptional situations give entitlement to a tax exemption on real estate capital gains under certain conditions. It is advisable to systematically check if you can benefit from this exemption with a professional.
Real estate capital gain on a principal residence
When selling his principal residence, regardless of the nature of the property, the owner is exempt from real estate capital gains tax. It is sufficient that the dwelling is the principal residence at the time of sale. The exemption also concerns direct outbuildings such as cellars or garages if they are sold at the same time as the residence.
In case of moving before the completion of the sale, the owner can still benefit from the exemption, under conditions. He must have occupied the property until its date of sale and that it takes place within a normal period. It is usually a one-year issue. Nevertheless, the tax authorities can adjust this period according to the circumstances of the sale:
- the situation of the local real estate market;
- the singular characteristics of the property;
- proof of the steps taken by the seller to put it on sale.
Real estate capital gain on a second home
When selling his second home, the owner is subject to taxes related to the real estate capital gain.
However, it may be exempt in certain situations:
- You do not own your principal residence during the four years preceding the sale of your secondary residence;
- You want to use the money from the sale of your second home to buy or build a primary residence within two years.
In the latter case, the exemption of the real estate capital gain is proportional to the fraction of the sale price used for the acquisition of the principal residence.
How to declare a real estate capital gain?
The real estate capital gain is declared at the same time as the income of the year of sale of the property. Namely, the income tax rate is 19% and that concerning social security contributions is 17.20%. Once you have calculated the amount of your real estate capital gain, taking into account the various exemptions and allowances, you will have to fill out your tax return accordingly.
In general, the notary is responsible for carrying out this formality. Indeed, he will have, upstream, calculated the taxable capital gain as well as the amount of tax to be paid after having carried out the procedures with the tax authorities. Then, he completes the declaration and makes the payment of the tax on the real estate capital gain to the land registration service of the place of housing.
The owner will have to indicate on his tax return the amount of the capital gain declared by the notary. In the case of an exemption, it is unnecessary to complete this part of your tax return, unless the exemption concerns the first sale of a secondary residence.
