tax rules - selling your own home

The general rule is that gains/losses made on the sale of real property are taxable/deductible. However, there are many exceptions to this general rule for the sale of housing that you occupy. The sale of commuter accommodation follows the same rules as those which apply to your own home.

Gains made on the sale of your own home are tax-free if certain occupancy and ownership conditions are met. If these conditions are met, any loss made on the sale of your own home will not be deductible.

Period of ownership and occupancy

  1. Period of ownership - The sale must take place or be agreed upon more than one year (12 months) after the property was acquired (purchased, inherited, received as a gift), and
  2. Period of occupancy - You as owner must have used the property as your own home for at least one year (12 months) during the past two years (24 months) before the sale takes place.

Period of ownership is the period during which you owned the property.

The period of ownership is determined from the date on which you acquired (purchased, inherited received as a gift) the property. You'll generally be considered to be the owner from the date on which you actually took possession of the property.

The period of ownership is determined up until the date of sale (realisation) or establishment of an agreement concerning sale (realisation), whichever comes first. This also means that certain incomplete agreements which do not contain well-defined conditions could interrupt the period of ownership.
If a property is purchased in a number of stages on different dates, the period of ownership is determined specifically for each purchase. Ownership periods are determined from date to date.

Period of occupancy is determined from the date on which you move into the house/apartment and is terminated with effect from either the date of sale (realisation) or the date on which the property is vacated.

The date itself of sale (realisation) or vacation of the property is included in the calculation of period of occupancy. Period of occupancy is normally determined within the period during which you own the house/apartment. If there are several periods of occupancy within the two-year period, these should be aggregated.

Example

You agreed to purchase a house on 15 June year 1. You take possession of the property and move in on 1 August of the same year. In the following year, you decide to sell the property. You enter into the agreement on 1 July year 2. The property is to be handed over on 1 August year 2.

Because the period of occupancy and the period of ownership are determined from the date of takeover until the date of establishment of the agreement in this case, the requirements concerning these two periods aren't met. The gain made on the sale will therefore be taxable. The gain must be entered in the tax return in the year in which the property is sold.

Are you married?

If one spouse used the property before marriage, this will also be considered part of the period of occupancy for the other spouse. This will also apply if the spouse who was the first to live in the property is no longer alive by the time the property is sold.
If a formerly joint property is sold after a separation or divorce, the spouse who moved out will be credited with the same period of occupancy as the spouse who continued to live in the property. This rule also applies to the breakdown of relationships between former spouse-equivalent cohabiting partners who either have or have had shared children.

Period of occupancy in the event of a hindrance to use

In some cases, you can be credited with a period of occupancy even if you have not lived in the property. This applies if you are prevented from using the property because of your job or that of your spouse, your health or other similar reasons. These are called ‘hindrances to use’.

Non-use can be deemed equivalent to your own use in the following situations:

  • If you have used the property as your permanent home and have to vacate the property due to reasons referred to above, or
  • If you can substantiate that you planned to use the property as your permanent home, but have been prevented from moving in due to reasons referred to above.

You'll be credited with the period of occupancy even if the property is let. However, periods during which you live in another dwelling that you or your spouse own will not be included in the period of occupancy. The rule concerning non-use applies correspondingly to commuter accommodation, but not to holiday homes.

A condition for being credited with a period of occupancy when you haven't lived in the property is that you weren't aware nor should have been aware of the hindrance to use at the time you purchased the property.

Examples of hindrances to use:

  • voluntary or compulsory change in job
  • obligation to live in a dwelling provided by your company
  • study at a school or university which is located away from your home
  • admission to an institution due to illness or age.

However, a situation where the property has to be let because you cannot afford to live there or you move somewhere else because you want a change of environment isn't considered a hindrance to use.

What is considered to be realisation?

The rules concerning tax liability for gains and deduction entitlement for losses apply to the sale and other realisation of property. The rules concerning ‘sale’ explained on this page therefore also apply to other forms of realisation.

A property is deemed to have been realised upon cessation of ownership or transfer of ownership to another party through, for example:

  • voluntary sale, including sale at a reduced price where the payment isn't symbolic,
  • compulsory sale, e.g.: expropriation, sale of a farm to another family member or sale at a compulsory auction,
  • exchange of real property,
  • complete destruction, e.g. by fire.

However, some forms of property transfer aren't considered realisation, e.g.:

  • transfer as a gift or advance on inheritance,
  • transfer through inheritance in the event of death,
  • division of a decedent estate,
  • transfer between spouses,
  • division of joint property between spouses.

Contact us if you are unsure.

The date on which the property is considered to be sold (realised) is important in determining the seller's period of ownership and period of occupancy. When calculating the period of ownership, an agreement concerning sale (realisation) will also be of significance.

If the realisation takes place through sale, the date on which a complete transfer agreement is entered into will be considered the date of realisation of the property.

An agreement is considered to be complete when the buyer and seller have agreed, with binding and final effect, that the property is to be transferred and that key conditions are to apply. The time of realisation will therefore normally be the day on which the offer is accepted.

Even if realisation in the form of sale is completed, the seller will be considered to be the ‘owner’ in other regards until the ownership is actually transferred to the buyer. This normally takes place upon taking possession of the property.
Until this date, it will therefore be the seller who, for example, must pay tax on capital and any income from the property.

Selling your own home when:

If you have let part of the property and you intend to sell the property, all or a proportion of the gain may be tax-free.

Completely tax-free

Gains made on the sale of your own home are completely tax-free when you have used at least half of the property as your own home, determined according to rental value. This assumes that the rest of the property has been let for residential purposes.

Partially tax-free

If you have used less than half of the property (determined according to rental value) as your own home, the gain made on any sale will be partially tax-free. The tax exemption will only apply to the gain linked to the part of the property that you have used yourself.

If you have used part of the property as a home office for business purposes, the gain made on any sale will be partially tax-free. The part of the gain that concerns the home office which is used for business purposes is taxable regardless of the period of ownership or occupancy. This will apply even if you occupy more than half of the property, determined according to rental value.

The "rental value" of an apartment/portion of a property is the normal rental price in the free market for similar rentals.

"At least half of the property" means that the rental value of the portion of the property you yourself have used as your own home must be at least as high as the rental value of the portion of the property that is rented out. "At least half of the property" relates to the rental value and not to actual size.

In the event of the sale of a share in a housing company (housing associations and limited liability housing companies), the same rules apply as apply to the sale of property in general.

If you use the housing unit as your own home, any gain made on the sale will be tax-free if the requirements concerning period of occupancy and period of ownership are met.

If a gain/loss made on the sale of a property is taxable/deductible, the calculation must take account of the housing unit's share of joint debt, etc. See the section entitled "Calculating gains/losses made on the sale of shares in a housing company" for more information concerning this.

If the conditions for tax exemption under the rules concerning the sale (realisation) of an ordinary farm aren't met, any gains made on the farmhouse and its naturally associated plot (the plot that is linked to the farmhouse) may still be tax-free under the rules concerning the realisation of residential property or holiday homes.

If the conditions for deducting losses under the rules regarding the realisation of farms are met, the proportion of the loss that is linked to the farmhouse will also be deductible. This applies even if the owner occupied the farmhouse, resulting in a loss that would not have been deductible under the rules concerning the realisation of residential property or holiday homes.
If the conditions for deducting losses aren't met under the rules concerning the realisation of ordinary farms, the proportion of the loss that is linked to the farmhouse may still be deductible under the rules concerning realisation of residential property or holiday homes.