A brief guide to taxes when selling house
8 August 2023 - Insights

A brief guide to taxes when selling house

So, the house valuation has been completed, many potential buyers have seen the property, and finally, it’s time to complete the closing of the sale. But what taxes does the seller need to consider?

Selling a home is a significant undertaking, and it often involves navigating the intricate world of taxation. For those preparing to take this step, it is crucial to be aware of the amount of taxes payable by the seller, thereby preventing any unpleasant surprises during the finalization of the transaction.

Taxes when selling a house can vary depending on several factors, but the good news is that in the majority of cases, the sale is exempt from taxes. Generally, the Italian tax authorities only intervene if the sale results in a capital gain. And even so, there are exceptions to consider.

What is real estate capital gain?

The term real estate capital gain refers to the profit earned from selling a property and arises when the selling price surpasses the initial purchase price, following an appreciation in the property's value.

There are several factors that can contribute to an increase in the value of a house: a thriving real estate market, infrastructural developments in the neighborhood, or the property's renovation, making it more appealing in the market..

When is the capital gain subject to taxation?

According to tax regulations, real estate capital gains are subject to taxation if the property is sold within the first five years of purchase. In this case, the transaction is considered speculative in nature, thus triggering the obligation to pay taxes.

Sellers have two options for tax payment: they can either choose the ordinary taxation method, where they include the earnings in their income tax declaration and apply the corresponding IRPEF (Personal Income Tax) rate, ranging from 23% to 43%. Alternatively, they have the choice to opt for separate taxation with a substitute tax rate of 26%. In this case, they will make the payment directly to the notary, who will record it in the deed and handle the transfer to the Revenue Authority.

However, there is a way to lessen the tax burden on the profit earned: the seller has the opportunity to deduct from the capital gains calculation the tax and notary expenses incurred for the purchase of the house, as well as the costs associated with any renovation work carried out.

When are capital gains exempt from taxes?

Capital gains can be tax-exempt under specific circumstances. For example, if you choose to sell the house after owning it for more than five years from the date of purchase, any resulting capital gain will not be subject to taxation.

Moreover, if the house being sold has served as the primary residence for over half of the period between its purchase and sale, you are not required to pay capital gains taxes.

Taxes on selling an inherited house

When you decide to sell a house inherited from someone, there are additional procedures to take into account. First of all, the inherited property cannot be sold until the inheritance taxes have been paid, with the specific tax rate varying based on the involved heirs. Moreover, you will also need to address the legal transcription fee and the cadastral tax, amounting to 2% and 1% of the property's value, respectively. However, it is possible to request a reduction of these last two taxes if the heir intending to sell the house meets the requirements to qualify for the benefits provided for primary residences.

To proceed with the sale, the transcription of the acceptance of the inheritance is also required. This is a document that certifies the transfer of property ownership to the heir(s) intending to sell the property. Additionally, there is a need to cover the expenses associated with submitting the application for cadastral registration change.

The good news is that capital gains generated from selling inherited properties are exempt from taxation, no matter how many years have elapsed since the inheritance date. This is because the sale of inherited properties is never considered a speculative transaction.

Taxes for selling a gifted house

When it comes to selling a gifted house, the recipient of the gift will be required to pay the real estate gift tax, which varies based on the degree of relationship between the parties involved. Additionally, there are other ancillary taxes to consider, such as a registration tax of 200 euros, a stamp duty of 230 euros, a cadastral tax of 1%, and a legal transcription fee of 2%. However, if the gifted property is used as the recipient's primary residence, these last two taxes are capped at a fixed rate of 200 euros each.

Any potential profit made from the sale of a gifted house is subject to taxation if less than five years have elapsed since the donor acquired the property. However, if the house was utilized as primary residence, the capital gain will not be subject to taxation.

Who pays the notary fees when selling a house?

When selling a house, the notary fees for finalizing the deed are typically the responsibility of the buyer. However, the parties have the flexibility to agree on alternative arrangements, such as dividing the expenses or fully assigning them to the seller.

Besides the notary's professional fee, there are additional expenses to take into account, such as the cadastral fee and the and mortgage taxes (€50 each), and the registration tax (9% of the property value or 2% if it's the first home, with a minimum threshold of €1000). If the seller is a company, the registration, cadastral, and mortgage taxes are fixed at €200 each, and a 10% VAT is applied (or 4% for first homes and 22% for luxury properties).

here are also other expenses that the seller will need to cover, such as costs associated with regularization, updates to land registry information, and the necessary certifications for the selling process.

**This article serves the sole purpose of providing general information and should not be considered a substitute for advice from a qualified professional.**