Real Estate Capital Gains: Calculation and Exemptions

Real estate capital gains correspond to the difference between the selling price of a property and its acquisition price. In France, these capital gains are subject to income tax as well as social security contributions. However, there are mechanisms of deductions and exemption conditions that can reduce, or even cancel, the tax due on these capital gains. This article explores the calculation of real estate capital gains, the applicable deductions, and the main exemptions.

Calculation of Real Estate Capital Gains

The calculation of real estate capital gains is done in several steps:

• Selling price: The selling price corresponds to the amount actually received by the seller, minus the expenses incurred by the buyer (such as real estate agency fees if paid by the seller).
• Acquisition price: This is the purchase price of the property, to which certain expenses can be added, such as acquisition costs (notary fees, registration fees), construction, reconstruction, enlargement or improvement expenses under certain conditions, as well as sales expenses if paid by the seller.
• Calculation of gross capital gain: The gross capital gain is obtained by subtracting the acquisition price from the selling price.
• Application of deductions: For properties held for more than five years, deductions for holding period are applied. The deduction is 6% per year from the 6th year and 4% in the 22nd year, which leads to a total exemption after 22 years for income tax. For social security contributions, the deduction is 1.65% per year from the 6th to the 21st year, 1.60% for the 22nd year, and 9% from the 23rd year, leading to a total exemption after 30 years.

Exemptions of Real Estate Capital Gains

Some situations allow for a total or partial exemption of real estate capital gains:

• Sale of primary residence: The capital gain realized when selling the primary residence is completely exempt, regardless of the holding period of the property.
• Sale of a low-value property: Capital gains realized when selling a property with a selling price below €15,000 are exempt from tax.
• Sale by elderly or disabled individuals: Under certain income conditions and if the seller does not have incomes above certain thresholds, the capital gain can be exempt.
• First sale of a property other than the primary residence: Partial exemption can be granted if the seller reinvests the proceeds of the sale in the purchase of a primary residence within a two-year period.

Real-Life Examples

Let's assume a property owner sells an apartment purchased for €200,000 15 years ago for €350,000. The selling price is €350,000 and the acquisition price is €200,000. The gross capital gain is therefore €150,000. After applying deductions for holding period, the taxable capital gain could be significantly reduced, or even cancelled in case of specific exemption.

Legal Texts Regulating Real Estate Capital Gains

The rules regarding real estate capital gains are set out in the General Tax Code, particularly in articles 150 U to 150 VH. These articles detail the calculation methods, deductions for holding period, and applicable exemption conditions. Legislative changes can impact these rules, so it is recommended to consult a tax advisor or a notary before any transaction.

Conclusion

The calculation of real estate capital gains and the application of possible exemptions are crucial steps to optimize the taxation of a real estate transaction. By understanding the applicable rules and seeking specialized advice, it is possible to significantly reduce the tax burden related to the sale of a property. It is advisable to prepare the sale carefully and consult an expert to maximize tax benefits while complying with current legislation.