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Tax exemption for reinvestment in habitual residence

The tax exemption for reinvestment in habitual residence is one of the issues that most concerned buyers face. This is especially true for those who already own another property in which they reside in, and whose objective is to sell it and move to the new one. This deduction affects the goodwill obtained with the transaction, that is, the money that is earned from the sale. We will explain in detail everything you need to know about it.

It should be noted that the Tax Agency clearly specifies that the proceeds from the sale of a dwelling are exempt from taxation if they are invested in the purchase of another property that will receive consideration of habitual residence or the renovation of another one that will acquire that use.

To know how much can be saved in this reinvestment, it must be made clear what the Tax Agency understands as equity gain, that is, the difference resulting from deduction of the sale price. However, the equation is further complicated by the need to apply for update coefficients.

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This is done in the income statement, which must be included in the section that relates to savings. According to the value of the capital, it will be understood as a gain or as an equity loss. In any case, it is subject to compensation with other gains and losses.

On the other hand, in order for the new house to be considered as a regular home, some requirements must be met. The first is to have been a resident in that property for a continuous period of at least three years. In addition, it must be inhabited within a maximum of one year after its specification as such. If either of these two circumstances is not met, you must return the deducted money unless it is the result of a job transfer or a divorce.

It should not be forgotten that the profits obtained from the sale must be reinvested within a maximum period of two years. Outside that period, they would be subject to a tax of 19.5 per cent and you would not be able to enjoy the reinvestment exemption in your usual residence. Also, these gains will not enjoy the deduction unless you had to set up a new mortgage for the acquisition of the new house.

As a point in favour of the buyer, it must be said that the law does not require that the investment of profits be made at once. This is especially positive when you want to move. The only requirement in this case is to allocate the money in full to the aforementioned purpose.

Engel & Völkers

Génova, 27 - 5th floor
28004 Madrid
+34 91 277 45 00

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