When selling a primary residence in Spain, the profit obtained generally must be declared in the Personal Income Tax (IRPF). However, there is a reinvestment exemption that allows taxpayers to save associated taxes if they allocate the amount obtained to the purchase of another primary residence. Let's explore some key aspects related to this exemption, especially in the context of financing through a mortgage.
Reinvestment Exemption in a Home and Its Relation to the Mortgage
When a taxpayer sells their primary residence, the profit obtained must be integrated into the taxable base for savings and subject to Personal Income Tax (IRPF). The reinvestment exemption, regulated by Article 38.1 of the IRPF Law, allows avoiding taxes if the amount obtained is reinvested in the purchase of another primary residence. It is crucial that this reinvestment is carried out entirely or partially within a period of two years, either before or after the sale.
Recently, a Supreme Court ruling clarified that it is not necessary to use the money obtained from the sale in its entirety to apply the exemption. Even money borrowed from a third party, either directly or through assuming an existing loan, is considered sufficient to meet the reinvestment requirement.
Financing with Mortgage and Loan Installments
When the taxpayer finances the purchase of the new home either wholly or partially through a mortgage, the amount obtained from the sale is allocated to the payment of the installments of the granted loan. The Supreme Court ruling establishes that this payment can be made not only within the two-year period set by the regulations but throughout the entire amortization period of the loan.
Tax Office Tricks and Legal Response
The tax office has applied some curious interpretations to deny the exemption, such as not mentioning the reinvestment in the tax declaration or buying the second home before selling the first. However, the courts have halted these actions, supporting the taxpayers. For instance, it is recognized that it is not necessary for the reinvested amount to be exactly the same as the one obtained from the sale.
Advantages for Taxpayers Over 65 Years
Taxpayers over 65 years old can benefit from additional exemptions. If the sold property is the primary residence, the exemption is 100%, and if it is shared, it applies to the owner over 65 regarding their share. Additionally, if the property is not the primary residence, reinvestment in a life annuity can exempt from tax payments.
Implications on municipal capital gains tax and recent regulatory changes
Municipal capital gains tax has undergone recent changes, including a declaration of unconstitutionality and modifications in regulations. Taxpayers should consider these aspects when selling a property, especially those who transferred before 10-11-2021 and claimed a refund before 26-10-2021.
In summary, understanding the tax key aspects related to the reinvestment exemption in a property is essential for taxpayers looking to optimize their tax situation when selling and buying a house in Spain. Recent jurisprudence and regulatory changes provide opportunities to fully benefit from this exemption.