What taxes do I need to pay when I sell my home?

Selling a house involves paying several taxes that will reduce the amount of money you receive from the transaction. It's important to know which taxes need to be paid, as failing to fulfill this obligation can result in penalties. So it's better to pay the fair amount on time.

This article provides information about all the taxes and expenses that a home seller must face. Some concepts depend on the property's value, but there are also other additional elements that are not related to the sale amount.

Ongoing expenses when selling a house:

• The real estateagency's commission: agencies charge a percentage of the sale price depending on the sale value and the services offered to the client. The commission is usually around 5%, but it can vary from 3% to 7%, and even more for luxury homes. Additionally, 21% VAT must be added to the total amount.
• Notary: In most cases, what seems strange happens. Although Article 1455 of the Civil Code states: "The costs of document preparation are borne by the seller, while the costs for the first copy and subsequent copies after the sale are borne by the buyer, unless otherwise agreed." But usually, this "unless otherwise agreed" is what happens. The buyer and seller typically agree that "All expenses related to the sale will be paid by the buyer, except for the municipal tax on the increase in land value, which will be paid by the seller." Thus, whether or not to pay part of the notary's fees is practically a rarity.
• Mortgage: if the house you are selling has a mortgage, it is important to carry out a very important procedure - its repayment. When the bank provides you with the relevant document (certificate of debt), you need to register it. Although this second step is very important, it is sometimes overlooked. If the mortgage is not canceled in the registry, the property will still be displayed (for example, in a simple record) with the indication of the mortgage burden.
• Energy certificate: to sell a house, it is necessary to provide an energy certificate. Although there are various rates on the market, the price can vary from 50 to 200 euros depending on the type of property. The energy efficiency certificate is valid for ten years.

What taxes need to be paid when selling a residential property?

Let's move on to the section about taxes. If the parties have not reached any other agreement, the seller of the property must pay the following taxes: personal income tax (IRPF), property tax (IBI), and municipal tax on the increase in land value (IIVTNU).

1. Municipal tax on the increase in land value

It must be paid in the event of the transfer of ownership of a land plot. The increase in land value at the time of transfer is taken into account, occurring over a maximum 20-year ownership period. The municipal tax on the increase in land value must always be paid when ownership changes, whether through purchase, inheritance, or exchange. It is worth noting an exception in the case of a gift, where the recipient of the property pays the tax on the increase in land value. It is very important: the tax on the increase in land value must be paid within the first 30 working days from the moment of ownership change. To calculate the tax base for the municipal tax on the increase in land value, the acquisition cost (purchase price or declared value in inheritance tax) is subtracted from the transfer value (sale price).

2. Personal Income Tax (IRPF)

It is paid to the tax service and is calculated based on capital gains, both from this transaction and from any other economic activity. How is personal income tax calculated for the sale of an apartment? Capital gain is considered to exist if there is an economic benefit from the sale. If the selling price is higher than the purchase price of the property, the tax service considers that there is a profit, and therefore, this is money subject to income tax in the annual tax return, according to certain criteria. To calculate the income, the following factors need to be taken into account:

• The cost of real estate: the purchase price should be increased to account for expenses related to improvements and renovations of the property, as well as taxes. All of this leads to an increase in the value of the real estate.
• This amount needs to be reduced by depreciation and, if applicable, any tax benefits from renting out the property. Additionally, taxes and expenses that were paid during the sale of the property (such as mortgage repayment, real estateagency fees, etc.) should also be taken into account.

If there is a capital gain after all of the above, income tax applies. The rate depends on the profit:

• A personal income tax of 19% applies to amounts up to 6000 euros.
• From 6000 to 50000 euros, the tax is 21%.
• From 50,000 to 200,000 euros, the income tax is 23%.
• Over 200,000 euros, a tax rate of 26%.

When and how is income tax paid? Income tax is calculated every year in the tax return, based on the income received - of any type - in the previous year. The tax return filing campaign begins in early April, when you can request a draft return to check the data or make necessary changes. The deadline for submitting the tax return and paying taxes is at the end of June.

Exceptions for income tax payment after the sale of residential property:

Not all apartment sales that generate profit are subject to income tax withholding, as some individuals may not be affected depending on their circumstances and whether the property was their primary residence or a secondary home. Here are several cases to consider:

1. If the seller is over 65 years old or is dependent, they are exempt from tax when selling their primary residence.
2. If the property being sold is your permanent residence, and all the money received is invested in the purchase of another permanent residence, you do not have to pay this tax to the tax authorities. In other words, if you sell your apartment and invest the money in buying another property where you plan to live, you are exempt from this tax.
3. In the case of transferring the proceeds to pay off a mortgage when selling an apartment, it is assumed that you are not selling your apartment for economic profit, but to pay off a debt. Therefore, since there is no profit, income tax is withheld.

Property tax on real estate (IBI)

The law on local finances establishes that the property tax (IBI) must be paid by the homeowner as of January 1 of the year in which the sale takes place. However, the buyer and seller can agree to split the payment of this municipal tax based on the months they owned the property. In fact, on June 15, 2016, the Supreme Court ruled that the buyer can pay a share of the IBI proportional to the number of months of ownership. This means that a person who sold their house on January 2 only needs to pay the IBI for those 2 days. The buyer is responsible for the rest.