Calculating gains and losses - selling your own residential property

In 1999, Kari Nordmann bought a residential property for NOK 750,000. She also paid NOK 18,750 in document duties and NOK 750 in registration fees. She also incurred expenses of NOK 50,000 for alterations considered to be improvements. She has always let out the property, so when she sold it a few years later for NOK 1,250,000, the gain she made was taxable. When selling the property, she incurred NOK 37,000 in expenses for an estate agent, advertising, etc.

Sale price in the year of sale NOK 1,250,000

– Sale expenses NOK 37,000 
= Output value in the year of sale NOK 1,213,000 

Taxable gain:

The gain of NOK 393,500 must be entered in the tax return and will be taxed as general income at the rate of 22 percent, which means that the tax payable on the gain in this example is NOK 86,570.

You’ll find information on calculating gains/losses made on the sale of property that has been inherited or received as a gift here.

Output value is everything you receive as compensation in connection with a sale or other realisation (sale price). This applies regardless of whether it goes to yourself or to others on your behalf. The sale price usually consists of a cash amount that has been or will be paid to the seller, and/or the buyer's takeover of the seller’s debt.

The output value is reduced by costs linked to the sale, e.g. estate agent commission, advertising costs, etc.

The input value consists of the original cost price/purchase price and other expenses attributable to the purchase or take-over of the property. Other expenses could for example include document duties, registration fees and expenses for an estate agent, etc. In addition, improvements made during your period of ownership should be added to the input value. 'Improvements' mean work that alters or improves the condition of the property.

The value of your own work linked to newbuilds or improvements can also be added to the input value. The value of your own work should be set to what it would’ve cost to have work of the same quality performed by others. The hourly rate for non-tradesmen must generally be set lower than a tradesman would’ve charged, e.g. to the hourly rate for unskilled labour. The applicable rates can be found on the Norwegian Labour Inspection Authority’s website. (Note that the value of your own work must be entered as income in the tax return in the year in which the work is performed. Exceptions apply to work that you do on your own home or holiday home in your spare time).

Maintenance expenses can’t be added to the input value. Maintenance, including repairs, is work that’s carried out to restore the property to its previous condition under either the current or a previous owner.

If you intend to sell residential property and the conditions for tax exemption aren’t met, you must perform a gain/loss calculation. Such a calculation is based on the difference between the output value (sale price) and the input value (cost price).

If you intend to sell a property  you’ve owned since before 1 January 1992, you can adjust the input value upwards in accordance with certain rules and rates. For residential property purchased after 1 January 1992, the input value can’t be adjusted upwards in accordance with these rules.

If the property was purchased over a number of years, or improvements were made during 1990 or earlier, each year's incremental increase of the input value must be adjusted upwards separately. For example, if you spent NOK 50,000 on improvements to the property in 1985, you must adjust this amount upwards by the rate for 1985 and add this value to the input value of the property.

The total input value can’t be adjusted upwards to an amount that is higher than the proceeds of sale. The amount of upward adjustment therefore can’t result in you being entitled to a deduction for any loss on the sale; it can only reduce or eliminate any gain.

The input value as of 31 December 1991 is set to the original cost price with a percentage increase in accordance with the following table:

Example

In 1979, Ola purchased a house for NOK 500,000. He incurred purchase expenses (document duty, registration fee) of NOK 10,000. In 1985, he spent NOK 50,000 on improvements to the property. A few years later, he sells the property for NOK 1,050,000 and incurs NOK 25,000 in expenses for an estate agent, advertising, etc. Ola hasn’t used the property as his own home in one of the past two years, and the gain will therefore be taxable.

As the property was purchased before 1991, the input value must be adjusted upwards.

*) For 1979, the input value must be adjusted upwards by 80 percent. This  means that the input value is increased by NOK 408,000 (NOK 510,000 x 80 percent).

**) The improvements were carried out in 1985, and the rate for upward adjustment for this year is 28 percent. This means that the input value is increased by NOK 14,000 (NOK 50,000 x 28 percent).

Taxable gain:

The gain of NOK 43,000 must be entered in the tax return for the year of sale and will be taxed as general income at the rate of 22 percent, which gives a tax on the gain in this example of NOK 9,460.