TAXATION: REAL ESTATE CAPITAL GAINS
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:
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 real estate capital gain 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:
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? What tax allowances are applied?
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.
How to declare 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.
What exemptions can non-French residents benefit?
As a non-resident, you can still be exempted from the real estate capital gains tax if:
To benefit from this right your new residence must be located in the European Union or in a state that has entered into an administrative assistance agreement (in order to fight against fraud and tax evasion) and a tax recovery agreement with France. This should also be registered at the time of the property transfer.
To do this, certain conditions must be met:
It's also important to note:
Like the previous exemption, this one also applies when the owner/seller transfers their residence to anywhere within the European Union or in a state that has entered into an administrative assistance agreement (in order to fight against fraud and tax evasion) with France.
At the same time, two conditions must be met:
Also note that:
- In the case of transfer of your principal residence in France
To benefit from this right your new residence must be located in the European Union or in a state that has entered into an administrative assistance agreement (in order to fight against fraud and tax evasion) and a tax recovery agreement with France. This should also be registered at the time of the property transfer.
To do this, certain conditions must be met:
- The transfer must be made no later than December 31st of the year following the transfer of the seller's tax residence outside of France.
- The non-resident owner/seller was free to dispose of their former principal residence in France following their departure from the country.
- The principal residence was not made available to a third party outside the seller and buyer.
It's also important to note:
- The deed of assignment must indicate the exemption and its basis.
- The non-resident owner/seller cannot benefit from the exemption below (provided for in Article 150 U II 2 ° of The CGI) if they already benefitted from previous exemptions.
- Your Net Taxable Capital Gain amounts to €150,000.00
Like the previous exemption, this one also applies when the owner/seller transfers their residence to anywhere within the European Union or in a state that has entered into an administrative assistance agreement (in order to fight against fraud and tax evasion) with France.
- Like the previous exemption, this one also applies when the owner/seller transfers their residence to anywhere within the European Union or in a state that has entered into an administrative assistance agreement (in order to fight against fraud and tax evasion) with France.
At the same time, two conditions must be met:
- The owner/seller must have been a tax resident in France for at least two years at any time prior to the sale of the property.
- The transfer must take place no later than December 31st of the tenth year following the move of said owner/seller—specifically their tax residence—outside of France (December 31st of the fifth year for transfers made before January 1st, 2019).
- The seller sold their property before January 1st of the year prior to their move outside of France.
Also note that:
- Civil servants, local authority employees, and healthcare civil servants who work abroad but who are tax residents in France may benefit from this exemption.
- The exemption applies within the limit of one residence per taxpayer.
- Cohabiting partners each constitute a single transferor and are subject to separate taxation for real estate capital gains.
- In the case of property sold by mutual agreement by a married couple, the spouses are considered co-transferors.
Capital gains for non-residents: who can be a tax representative?
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:
Real Estate Capital Gains for Non-residents: Who can be a Tax Representative?
Important Link: What is Real Estate Capital Gain for Non-French Residents?
- 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
Real Estate Capital Gains for Non-residents: Who can be a Tax Representative?
- The buyer of the property if they are tax residents of France.
- Banks and credit institutions operating in France.
- Any person accredited by the administration.
- As for residents, the tax is levied by the notary at the time of sale. The capital gain should therefore not be reported on the 2042 return.
Important Link: What is Real Estate Capital Gain for Non-French Residents?