Selling a property that is eight years old will face a higher municipal capital gains burden in 2023. The new coefficients updated in the State Budget Law for 2023 raise the values that affect homes aged five to thirteen, with eight-year-old properties seeing the multiplier rise from 1 point in 2022 to 1.5 points in 2023. This change represents a 50 percent increase in the municipal capital gains calculation for qualifying homes.
Specifically, disposing of a property acquired between 2009 and 2019 in 2023 will trigger a larger municipal capital gains payment. For a home purchased in 2015, selling it in 2023 after eight years instead of selling in 2022 after seven years could mean up to 25 percent more municipal capital gains tax under the new coefficients.
How does capital gains tax work?
Local capital gains tax is charged by the municipality where the property is located and applies when the property changes hands through sale, barter, donation, or inheritance, including transfers via judicial auction or expropriation. It tracks the increase in land value over a defined period, commonly twenty years for urban land. In November 2021 the government redesigned this tax after the Constitutional Court struck down the previous framework, and the reform introduced two calculation methods. The objective method uses a tax base derived from the cadastral value multiplied by new annual coefficients, adjusted to reflect market realities. The true surplus value method bases the tax on the difference between the sale price and the acquisition price, focusing on the land portion rather than the structure. Municipal tax rates then apply within legal limits.
The Constitutional Court had annulled the prior approach on the grounds that it allowed surplus value to be taxed even when a sale incurred a loss. To address this, the Treasury issued a November 2021 reform that provides taxpayers with two options and lets them choose the less burdensome method. The two options remain the foundation of the calculation: one is the objective capital gain, the other is the true surplus value. Both results are then taxed at municipal rates to determine the final payment. This framework ensures a taxpayer can select the calculation path that minimizes the tax burden in a given year.
What are the consequences of the change in the Budget Law?
The municipal capital gains tax is calculated by multiplying the land’s cadastral value by a reduction coefficient set each year in the Budget Law. Recent reports show coefficients for 2023 range from a low of 0.45 for long-held properties to a low coefficient, with adjustments across the spectrum. Some coefficients changed more dramatically for properties aged between 13 and 5 years, while others moved down or up depending on age and market conditions. The eight-year coefficient saw a notable rise in 2023, increasing from 0.10 in 2022 to 0.15 in 2023, a 50 percent jump. This means a property bought in 2015 and sold in 2022 would incur a lower base tax than if the sale occurs in 2023, when the higher coefficient applies.
Consider a hypothetical example of a house purchased in 2015 for 310,000 euros and sold for 350,000 euros. The apparent gain is 40,000 euros, but the portion attributed to land value is 24,000 euros. If the sale happens in 2022 when the property is seven years old, the tax base would be 24,000 euros multiplied by 0.12, yielding 2,880 euros. If the sale takes place in 2023 after eight years, the tax base would be 24,000 euros multiplied by 0.15, resulting in 3,600 euros, which is 25 percent higher than the 2022 scenario. The final tax still depends on the municipal rate applied to this base.
The tax rate itself is determined by the local municipality, and the final amount reflects both the coefficient and the local rate applied to the tax base. The coefficients are updated annually to reflect observed market transactions and national value trends, ensuring that the calculation aligns with real-world conditions.
According to which criteria does the Ministry update the coefficients?
Officials explain that coefficients are updated objectively, based on observed national value increases and actual transactions carried out each year. The process uses real market activity as the baseline data, and the updates are not made arbitrarily. This objective approach aims to align the tax base with current market conditions while maintaining consistency in annual updates.
Cumulatively, the changes in the Budget Law influence how the municipal capital gains tax is assessed, emphasizing the importance of timing in sales and the potential impact of the annual coefficients on tax outcomes. The combination of the two calculation methods allows homeowners to analyze which method yields the lower tax burden for a given sale, especially when market values and hold periods shift year to year.
Note: This article presents a general overview based on the 2023 Budget Law provisions and typical calculation frameworks. For precise tax liability, taxpayers should consult the official Budget Law text and, if needed, a qualified tax professional who can apply the local coefficients and rates to the specific property and transaction details.