When selling a property, not only the buyer may be subject to a tax payment obligation, but the seller may also face tax payment and declaration situations. But what is the tax after selling a property and how do we calculate it? We will help you with this now.
In our article, we only explore the personal income tax payment obligation arising from the sale of residential property by individuals, and we do not deal with other tax types (so primarily with the issue of VAT).
After selling a property, we have a personal income tax payment obligation on the income we have earned. The rate of this tax is 15% in 2023. We can calculate our taxable income from the sale of the property according to the Personal Income Tax Act.
Tax after selling a property: here's how to calculate it
Our revenue from selling a property is the selling price. From this revenue, we have to deduct the costs specified in the Personal Income Tax Act that burden the seller:
- the amount spent on acquisition and other related expenses: this primarily includes the purchase price of the property paid by us, so if we bought a property for 30 million forints earlier and sell it for 40 million forints, then we can deduct the 30 million forints from the 40 million forints. We draw attention to the fact that the paid acquisition tax also belongs to this category and can be deducted from the revenue.
- value-increasing investments: sticking with the previous example, if we bought a property for 30 million forints, then we renovate it for 5 million forints (making a value-increasing investment), and sell it for 40 million forints, then the 5 million forints of our value-increasing investment can also be deducted from the 40 million forints along with the 30 million forints.
- costs related to transfer: this includes the real estate agent's fee and the cost of advertising the property.
After calculating and deducting the costs as above from the revenue, we can determine how much income we have earned from selling our property.
When and how much do we have to pay?
It is important to note that our tax obligation only arises in the year of acquisition of the property or in the following four years in the event of a sale, calculated as follows from the income calculated according to the above, as the tax base:
- 100% of the income in the year of acquisition and the following year,
- 90% of the income in the second year following the year of acquisition,
- 60% of the income in the third year following the year of acquisition,
- 30% of the income in the fourth year following the year of acquisition,
- 0% of the income in the fifth and subsequent years following the year of acquisition.
Thus, no tax liability arises from the fifth year following the year of acquisition, regardless of the amount for which we sold our property.
It should be emphasized that the law considers the time of acquisition to be the day of submission of the purchase agreement to the land registry, not the day of signing the purchase agreement for the property! For example, it is important that if the parties sign a purchase agreement for a property in the last days of December, but it is not submitted to the land registry until the beginning of the following year, then the year of acquisition will already be the following year, which significantly increases the duration required for a tax-exempt sale.
This is what it looks like in practice
We would like to illustrate how the tax on real estate sales works through an example. In 2020, we purchased an apartment for 30 million forints (with the real estate sales contract accepted by the land registry office in November 2020). Following the purchase, we paid 1,200,000 forints in property transfer tax. In 2021, we renovated the purchased apartment for 3 million forints, and in 2023, we sold it for 40 million forints through a real estate agent who charged a commission of 1,600,000 forints. Our income after the 40 million sales price (40 million - 30 million - 1.2 million - 3 million - 1.Considering that the acquisition year is 2020 and the sales year is 2023, 60% of the 4,200,000 forints, which is 2,520,000 forints, will be the basis of our personal income tax, and 15% is the tax, resulting in an obligation to pay 378,000 forints in tax as a seller. If we sell the apartment purchased in 2020 only in 2025 or later, we will not have a tax base, so we will not have an obligation to pay tax. Note that we need to record the income in our personal income tax return and pay the generated tax by the declaration deadline.
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