Real Estate Capital Gains Explained
Real estate capital gains refer to the profits derived from the sale of a property. This financial gain is calculated by determining the disparity between the selling price of the property and its original purchase price. This difference can manifest either positively, indicating a capital gain, or negatively, representing a capital loss.
Data Required for Calculation:
To accurately compute real estate capital gains, several pieces of information are essential:
– The year of purchase and the corresponding purchase price.
– The year of sale and the corresponding selling price.
– The inflation adjustment coefficient: This coefficient is crucial for updating the property value, taking into account the year of purchase. It is applied whenever there is a gap of more than 24 months between the purchase and sale dates. These coefficients are annually updated through regulations published in the Official Gazette.
– Expenses and charges: These include costs associated with renovations, improvements or window replacements, fees related to real estate agency services, expenses for obtaining an energy performance certificate, municipal taxes for paid property transfers, as well as costs for registrations and deeds.
Deductible Expenses and Charges:
Certain expenses and charges can be deducted from the total capital gains, including:
– Costs related to obtaining an energy performance certificate.
– Municipal taxes for paid property transfers (IMT).
– Stamp duty (IS).
– Commission fees paid to the real estate agency.
– Notary fees.
– Deeds.
– Expenses for improving the property’s value, such as maintenance and repair works conducted within the last 12 years, which enhance the property’s worth.
Calculation Method:
The calculation of real estate capital gains is conducted by subtracting the selling value from the purchase value, adjusted for inflation. Additionally, any costs incurred for real estate commissions, notary fees, property transfer taxes (IMT), or improvement works carried out within the last 12 years and properly documented with invoices must be deducted.
The formula for calculating capital gains is as follows:
Capital Gains = Selling Value – (Purchase Value × Inflation Adjustment Coefficient) – (Costs of Sale and Purchase + Costs for Improving the Property’s Value)
Taxation of Capital Gains:
Upon selling a property, it is mandatory to report the transaction to the tax authorities in the income tax declaration for the respective year, regardless of whether the property incurred capital gains or losses. However, certain situations may qualify for exemptions from capital gains tax payment.
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