What is real estate capital gain?

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What is real estate capital gain?

In a nutshell, the real estate capital gain is how much you earn from selling a property. It's not necessarily what the buyer paid you, but rather, it's the remaining difference between the purchase price of when you bought the property and the final price of when you sold the property to another. 

In accordance with the provisions of Article 150 VA of the General Tax Code (CGI), the transfer price to be retained is the actual price as stipulated in the deed of sale.

Moreover, real estate capital gains are taxable as income and come in various types:
  • The Sale of Real Estate (i.e. house, apartment, land, etc.).
  • The Sale of a Right or Title Attached to Real Estate (i.e. bare ownership, usufruct, shares in SCI, etc.).
  • The Exchange of Goods, Sharing, or Contribution to Society.

How is the capital gain on a property calculated?

Now that you know what the real estate capital gain is, how exactly is it calculated? Well, it's very simple. 

Gross Capital Gain = Sale Price - Purchase Price

But before you calculate that, you should also know how the sale price and purchase price are calculated respectively too. They are as follows:

Sale Price (Sale) = Sale price + Expenses Paid by the Buyer - Disposal Costs

Purchase Price = Purchase price + Expenses incurred at the time of purchase + Acquisition costs + Works Expenses + Road, Network, and Distribution  costs

Important to Note:  
  • It is possible to deduct from the work of the surplus value. 
  • Construction, renovation, or expansion costs borne made (and paid) by the owner (seller) and done by a third-party company may increase the purchase price. Remember to give supporting documents
  • Work undertaken by the owner is not deductible
  • According to Article 150 VB II of the General Tax Code, housing must not have rental charges.
  • If the property was acquired free of charge, the purchase price corresponds to the price indicated in the deed of succession or gift plus the actual acquisition costs.

What are the grounds for exemption?

You are exempted from paying the real estate capital gains tax in France if any of the following are applicable to your property sale:
  • The property has been held for more than 22 years.
  • The property was sold at a price of less than €15,000.00.
  • The property sold is the principal residence of the seller on the day of the transfer.
  • The seller is a senior citizen with a pension or a registered disabled person (provided that their reference tax income does not exceed the ceiling amount).
  • The property has been transferred to an organization in charge of social housing or to a private operator who undertakes the construction of social housing.
  • The transferor resides in a social or medico-social establishment for the reception of senior citizens or disabled persons (provided that their reference tax income does not exceed the ceiling amount).
  • The seller is a non-resident.
  • The property was exchanged as part of specific real estate consolidation operations.
  • The property was sold by an individual who exercised his right of abandonment under certain conditions.
  • The transfer price is reused by the seller to buy or build a property that is to be their new principal residence within 24 months (1 year). 
  • The seller must not have owned their principal residence within the four years prior to the sale

What is the link between surplus value and building land?

Article 28 of Law No. 2017-1775 of December 28, 2017, allows for the application of exceptional allowances on a temporary basis to determine the net taxable real estate capital gain of the property sale.

This mainly concerns the transfer of building land or buildings that will be demolished to rebuild other condominiums.

The 70% Tax Allowance can go up to 85% only if: 
  • The land is located in a tense area.
The buyer must undertake to build one or more properties within 4 years.

How to declare and pay a real estate capital gain?

The declaration and payment of the real estate capital gains tax should take place at the time of the sale. Basically when the deed of sale is signed by both parties and the document is officially notarized.

When you are exempt from the real estate capital gains tax, you don't need to declare anything. Just show the deed of sale that must indicate the nature and reason for the exemption from taxation.

How is the net capital gain calculated?

There are two net capital gains that must be calculated. The first is what will be taxed as income tax (19% tax) and the second is the net capital gain that's subject to Social Security contributions (17.2% tax). 

Net Capital Gain = Gross Capital Gain - Abatement

What are the tax allowances on capital gains?

Depending on how long you (owner/seller) have owned the property prior to selling it, you will be allowed to earn tax allowances from your real estate capital gain. The rate of deduction on income tax and the rate of abatement on social security contributions are as follows:
  • Less than 6 years: 0%
  • From 6 to 21 years: 6% and 1.65%
  • From 22 years: 4% and 1.6%
  • Over 22 years: Exemption and 9%
  • Over 30 years: Overall Exemption
Ce qu’il faut retenir :
  • Real estate capital gain refers to the amount you earn from selling your property.
  • It's not the final purchase price that the buyer pays you for the property.
  • Instead, it's the remaining difference between the purchase price of when you bought the property and the final price of when you sold the property.
  • Real estate capital gain tax is imposed on the sale of a property, the sale of a right or title attached to real estate, and the exchange of goods, sharing, or contributions in a company. 
  • It is possible to deduct surplus value from the work. 
  • Declaration and payment of the real estate capital gains tax should take place at the time of the sale (when the deed is signed and officially notarized).
  • Depending on how long you've had the property, you can benefit from a tax deduction rate.
  • You can be exempted from the real estate capital gains tax if you meet certain conditions such as
  • You've owned the property for more than 22 Years
  • You sold the property for less than €15,000.00

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