The key is the tax exemption that exists when the home is sold and if the money obtained is reinvested or not in the purchase of another house or in the rehabilitation
Imagine that you had to sell your house . How much would you want to do, 400,000 or 380,000 euros? The answer, ‘a priori’, seems obvious, right? Everyone wants to get the most money for their home . However incredible, it may sometimes be more profitable to opt for cheaper. How is it possible?
The key is the tax exemption that exists when the home is sold and if the money obtained is reinvested or not in the purchase of another house.
But let’s go in parts. When a private individual or a couple sell a home , they obtain a net worth . That is, your estate increases and you have to declare it to the Treasury. This profit is exempt from taxes if it is reinvested in the purchase of a new habitual house or in the rehabilitation of the one that will have suchcharacter . Do not confuse this equity gain with the municipal surplus value , a tax that has to be paid to the corresponding municipality.
“On many occasions, we become obsessed with not selling our usual home below a certain price”
“The law says that the reinvestment of the amount obtained in the sale must be made, once or successively, in a period not exceeding two years, between the purchase and the sale, which may be not only the later but also the previous ones the sale of the previous residence . the total or partial exemption shall be based on the percentage reinvested , “says Paula Satrústegui , director of financial planning Abante.
With the tax reform , gains obtained by people over 65 with the sale of any kind of property are exempt from taxation. In the case of a second home, this exemption will occur provided that the proceeds go to the creation of an insured annuity, with a limit of 240,000 euros and within six months.
In the midst of crisis and with prices of housing in free fall, many individuals have decided to wait to be able to sell a little more expensive. And, paradoxically, it is not always the most convenient option. If we lose that taxexemption, that is to say, if more than two years elapse between the purchase and the sale of the house, we may find it more profitable to sell something cheaper.
“On many occasions, we become obsessed with not selling our usual homebelow a certain price without realizing that if we let the term pass and we lose the reinvestment exemption, we may receive less money than if we sell today at a lower price “.
Let’s look at an example
Suppose we bought a house in 2002 for 250,000 euros and the expenses associated with the purchase amounted to 25,000 euros. In total, we spent on the purchase 275,000 euros. We want to sell it for 400,000 euros because we have bought a new home for 500,000 and we know that the expenses associated with the sale – municipal value – amounted to 10,000 euros. Goodwill (sales price less purchase price less costs associated with buying less expenses associated with the sale) will be taxed at 19-21-23% in income tax unless it can apply the exemption for reinvestment.
What can happen?
1.- That they make us an offer for an amount less than 400,000 euros. Imagine 380,000, which would have to remove the 10,000 euros associated expenses. If we sold the house and bought another one within the term, that is to say, in two years, we would not have to pay income tax and we would receive 370,000 euros net -808,000 minus 10,000-.
2.- We decided to wait to sell for 400,000 euros. If we pass the term of two years, we will not be able to accept the exemption for reinvestment and we will have to tax in the IRPF . After paying the IRPF and discounting the expenses associated with the sale, we would receive 364,670 euros. That is, despite having sold the usual house for 20,000 euros more, we receive less money.
“There is, therefore , a turning point from which I am interested in selling at a lower price, accepting the exemption for reinvestment, than waiting to sell at a higher price and having to pay taxes because I can not accept such exemption for reinvestment” , Highlights Satrústegui.
