Abolition of real estate acquisition tax, exemption from income tax from the sale of real estate after 10 years
On 25 September 2020, Act No. 386/2020 Coll was published in the Collection of Laws, which definitively abolished the tax on the acquisition of real estate. It also includes several changes in the Income Tax Act. The topic has been heavily publicized since the beginning, and political negotiations took place during the legislative process, and the law thus underwent a number of changes compared to the original government proposal. Therefore, we briefly summarize the final form of the adopted fundamental measures.
Retroactive abolition of real estate acquisition tax
The real estate acquisition tax, which the buyer was obliged to pay in the amount of 4% of the value of the acquired real estate, is cancelled, retroactively. The tax does not have to be paid by a person who bought property at the end of 2019 and the Real Estate Cadastre made a deposit during December 2019 or later. Formally, therefore, these are cases in which a tax return for real estate acquisition tax should have been filed by 31 March 2020 or later. In fact, however, fines for late submission (non-submission) of such a return and interest on late payment of the tax were waived, as it was expected that the tax would be abolished by the end of the year at the latest.
What happens when someone declares and paid the cancelled acquisition tax?
In general, it can be assumed that due to the lifting of sanctions and the political agreement declared in the media, there will not be many such cases. However, if someone paid the real estate acquisition tax for which the cadastre registered in December 2019 or later, with the entry into force of the adopted law on 26 September 2020, an overpayment thus occurred at the tax office. The tax is abolished automatically. However, the overpayment is not automatically refunded and must be requested. The tax office will return the relevant amount within 30 days of the submission of the application, unless the applicant has arrears on other taxes.
The deduction of interest on mortgages was maintained, only the maximum amount was reduced
The Chamber of Deputies rejected the originally proposed abolition of the possibility for natural persons to deduct interest on newly concluded mortgage loans and other loans to finance housing needs (e.g. loans from building savings). The possibility of reducing the tax base by this interest was therefore retained. However, the maximum amount of interest deducted for one household is reduced from the current CZK 300,000 to CZK 150,000.
The new limit will apply only to loans that will be used to finance housing needs acquired from 1 January 2021. The scope of housing needs, for which it will be possible to deduct interest on loans to finance them, has been maintained (this includes not only the acquisition of an apartment, house or land, but also maintenance, repairs and reconstructions, including flats for rent or other use, acquisition of a membership share in a housing cooperative and the like). In the case of later refinancing of old loans, the old rules will still apply.
Extension of the time test for the exemption of income from the sale of real estate
The change to the detriment of taxpayers is the extension of the period for which it is necessary to own real estate that is not used for one's own housing immediately before the sale in order to exempt income from its sale from taxation - from the current 5 years to 10 years. The standard rules still apply that the tenant's tenure will be included in this period if the property was acquired from the inheritance of a close relative, and the like.
We remind you that this rule applies not only to real estate held as an investment, but also, for example, to the sale of apartments in which the owner's parents or children live, or real estate used for recreational purposes.
The ten-year period shall apply only to the sale of immovable property acquired from 1 January 2021 (in this case, the decisive date is the date of the legal effects of the contribution to the real estate cadastre).
From when the new rules will apply
The Act is generally effective from the day following its publication in the Collection of Laws, i.e. from 26 September 2020, and the provisions on income tax from 1 January 2021. However, most provisions have special rules regarding the moment from which they will apply, which are described above in the individual sections.