Exemption for reinvestment in primary residence
Selling a dwelling often brings tax considerations into play, especially when the proceeds could influence personal income tax. In many cases, redirecting the sale proceeds to a new primary residence can eliminate or greatly reduce tax due. To qualify, the home sold must be treated as a primary residence, and the seller should have maintained permanent residency for a set period. If the three-year threshold isn’t reached, certain justified moves may still qualify. The new property must also be regarded as a habitual residence, and the reinvestment needs to be completed within twelve months after the purchase or sale closing.
The reinvestment window extends two years, and the period can begin before or after the sale takes place.
For the exemption to apply fully, all net sale proceeds after eligible costs must be reinvested in the purchase of the new home. Any surplus may limit the extent of the exemption available.
Image caption: a “for sale” sign on a house. EP
Exemption for individuals aged 65 and over
People who are 65 or older may qualify for a personal income tax exemption on the sale of their habitual residence, even if they do not reinvest in another home. When the sold property is a secondary residence, tax may apply unless the proceeds are used to secure a lifetime income following these rules:
- Term. The lifetime annuity must be arranged within six months of the sale date.
- Amount. The maximum amount eligible for the exemption is €240,000.
- Frequency. Payments should be made once a year or less and begin within a year of the plan being set up.
- Notification. The insurer or bank must be informed that the funds come from a home sale and that the taxpayer intends to claim the exemption.
Exemption on delivery of a flat in payment
When a homeowner faced with mortgage difficulties transfers the property when the loan is due, a tax exemption may still apply if there is no other property held in significant quantity to cover the debt. In such circumstances, the difference between the acquisition value of the transferred flat and its sale value is used to determine capital gains or losses. Any extinguished debt value is treated accordingly.
These rules help illustrate how the sale price, debt relief, and reinvestment interact to shape tax outcomes in common situations.