Buying and reselling property in Italy, the real estate capital gain

The real estate capital gain in Italy: everything you need to know

Anyone who decides to buy and subsequently resell a property in Italy, either for a personal choice or as an investment, will have heard of real estate capital gain at least once.

But what is real estate capital gain?
It is the positive difference between the purchase price of a property and its resale price, which allows a profit to be generated; under certain conditions, this profit is taxed by the tax authorities.

Capital gain taxation is therefore a factor to be aware of when reselling a property, because it erodes part of the profit made.
Let us therefore see how real estate capital gain works, what the taxation is when it occurs and what costs are deductible.

When selling a property, at a higher price than when buying it, one can choose two different ways to deal with the taxation of real estate capital gain.

The first is by paying IRPEF together with the other income produced, declaring the capital gain in the tax return. The amount to be paid will be added to your other personal income and will therefore depend on your tax bracket.
Specifically, it is important to keep in mind that the percentage changes according to income brackets, and in more detail
- up to 15,000 € is calculated at 23%;
- from 15,001 € to 28,000 € the percentage is 25%;
- from 28,001 € to 50,000 € the rate rises to 35%;
- from 50,000 € onwards the rate is 43%.

The second, paying the 26% substitute tax when signing the notarial deed of sale of the property. In this case, the notary will calculate the tax and then pay the corresponding amount to the Inland Revenue.
Even when deferred payment of the property is envisaged, the tax must be paid in a lump sum.
It must therefore be assessed on a case-by-case basis which taxation is the most convenient, so as to minimise taxation and increase the profit generated by the real estate resale.

The capital gain on the sale of a property is not always due, but only has to be paid under certain conditions.
First, taxation is due when less than five years have passed between the purchase and sale of the property.
Conversely, if the sale takes place after 5 years from the purchase, the real estate gain is not taxed.

For taxation to be provided for, the real estate must be acquired for consideration. A person who receives a real estate as an inheritance and sells it within five years does not have to pay the real estate capital gain.

There is also another scenario in which no tax is payable on the real estate capital gain.
If the property purchased is used for more than 50 per cent of the time between purchase and resale as the principal residence of the purchaser or his family members, i.e. as the principal registered residence, evidenced by the relevant certificate of residence issued by his municipality, thus proving that in fact the property was used as a dwelling for more than half of the time between purchase and sale of the property.
Proof of residence must then be provided, possibly also by submitting household bills.

To calculate the real estate capital gain, simply subtract the purchase price from the sale price of the property. This positive difference represents the real estate capital gain, which is to be used as the basis for calculating the relevant taxation.

Calculating the taxation is more complex, however, because it depends on the method of payment chosen. Those who choose to pay the real estate capital gain together with their other declared IRPEF income will pay according to their tax bracket.

When, on the other hand, one chooses to pay the 26% rate at the time of the notarial deed, the calculation is simpler. To define the exact amount of the real estate capital gain, the deductible expenses must first be subtracted.
Let us look in detail at what the deductible expenses are:
- The taxes paid for the purchase of the property, such as registration taxes and cadastral and mortgage taxes;
- The fee paid to the notary for the deed and the advice given;
- Costs incurred in freeing the house from transcripts, forfeitures, mortgages;
- Any brokerage fees for the real estate agency;
- Substitute tax on the mortgage;
- Invoices paid to make improvements or renovations to the property, provided they are extraordinary maintenance and not merely ordinary maintenance work.

Obviously, we are talking about fiscally recognised and documentable expenses and costs, always gross of VAT. If the deduction of these expenses is taken into account, the real estate capital gain is reduced and thus also the tax payable to the tax authorities.

The real estate capital gain from donation is also taxed, when the person who received the real estate as a donation, resells it within five years. In this case the capital gain is the difference between the sale price and the costs incurred by the donor in constructing or purchasing the property.
In the case of a donation, all the other rules we have seen regarding real estate capital gain also apply. If, for example, the donee uses the house as a home for himself or his family members, he can escape taxation if the property is sold. The expenses deductible from the capital gain are also taken into account in the case of a donation.

The donation does not interrupt the five-year period that must elapse from the purchase to the sale of the property in order to avoid taxation of the capital gain. On the other hand, when more than 5 years elapse from the donation to the sale of the real estate, the real estate capital gain is not due.

To summarise, when is real estate capital gain tax due?
You have to pay real estate capital gain tax when:

- You sell your first home before 5 years unless it is your main home for 50% or more of the time you own it.
- You sell your second home before 5 years.
- You sell a house received as a donation before 5 years of the donor's purchase.
- You sell a house you have built before 5 years of completion.
- Always on building land before and after 5 years even if inherited.
- Non-inherited agricultural land if you sell before 5 years of purchase.
- In the transfer of cubage.
- In disposals of a transactional nature.

Broker Immobiliare Exclusive Real Estate, a company specialising in the purchase and sale of luxury real estate, based in Forte dei Marmi, Tuscany, is available to its clients for real estate consultancy, using highly specialised and experienced staff in the field of buying and selling luxury properties, especially those of significant value and complexity.