Housing relief - sale of an apartment possible without tax

Service-Tax

The housing relief is undoubtedly a positive aspect of the possibility of avoiding taxation of income from the sale of real estate for consideration. From the taxpayer's point of view, it is important to meet certain conditions that will make it possible to take advantage of the tax relief, thus avoiding the payment of personal income tax, which amounts to 19% of the tax base. Tax authorities each time verify the taxpayer's entitlement to benefit from the tax relief, especially paying attention to the statutory formulation of the allocation of funds from the sale for "own housing purposes" and thoroughly verifying the source of funds for its purchase. Finally, the question arises whether such a relief can be inherited?

Conditions for taking advantage of the housing relief

The housing relief is nothing more than a tax exemption from income generated from the sale of real estate (e.g. a flat, a detached house), which the taxpayer may use, provided that within two years from the end of the tax year in which the real estate is sold, he / she acquires real estate for own housing purposes.

Pursuant to Art. 21 sec. 1 point 133 of the Personal Income Tax Act (Journal of Laws 2018.200, i.e. of 2018.01.24), hereinafter: the PIT Act, income from the sale of real estate and property rights referred to in art. 30e, in the amount that corresponds to the product of this income and the share of expenses incurred for own housing purposes in the income from the disposal of real estate and property rights for consideration, if from the date of disposal for consideration, not later than within two years from the end of the tax year in which it occurred sale against payment, the income obtained from the sale of this property or this property right was spent on own housing purposes; documented expenses incurred for these purposes are taken into account up to the amount of income from the sale of real estate and property rights against payment.

For the expenses incurred for the purposes (own housing purposes) referred to in art. 21 sec. 1 point 131 of the PIT Act, it is considered (Article 21 (25) of the PIT Act):

1. expenses incurred for:

    1. purchase of a residential building, its part or a share in such a building, a flat constituting a separate real estate or a share in such premises, as well as for the purchase of land or a share in land or the right of perpetual usufruct of land or a share in such a right related to this building or premises,
    2. acquisition of a cooperative ownership right to a dwelling or a share in such right, the right to a single-family house in a housing cooperative or a share in such right,
    3. purchase of land for the construction of a residential building or a share in such land, the right of perpetual usufruct of such land or a share in such right, including the construction of a residential building, and the acquisition of another land or share in land, the right of perpetual usufruct of land or a share in such right , if in the period referred to in para. 1 paragraph 131, this land will change the purpose of land for the construction of a residential building,
    4. construction, expansion, superstructure, reconstruction or renovation of your own residential building, its part or your own residential premises,
    5. extension, superstructure, reconstruction or adaptation for residential purposes of own non-residential building, its part, own non-residential premises or own non-residential premises

- located in a Member State of the European Union or in another country belonging to the European Economic Area or in the Swiss Confederation;

2.expenditure incurred on:

    1. repayment of the loan (loan) and interest on the loan (loan) taken by the taxpayer before the date of obtaining income for disposal referred to in article 2. 10 sec. 1 point 8 lit. a-c, for the purposes set out in point 1,
    2. repayment of the loan (loan) and interest on the loan (loan) taken by the taxpayer before the date of obtaining income for disposal referred to in article 2. 10 sec. 1 point 8 lit. a-c, for the repayment of the loan (loan) referred to in point (a). and,
    3. repayment of each subsequent loan (loan) and interest on that loan (loan) taken by the taxpayer before the date of obtaining income for disposal referred to in article 2. 10 sec. 1 point 8 lit. a-c, for the repayment of the loan (loan) referred to in point (a). a or b

- at a bank or a cooperative savings and credit union, established in a Member State of the European Union or in another country belonging to the European Economic Area or in the Swiss Confederation, subject to para. 29 and 30;

3.the value of the received for sale by exchange, located in a Member State of the European Union or in another country belonging to the European Economic Area or in the Swiss Confederation:

    1. a residential building, its part or share in such a building, residential premises constituting a separate real estate or share in such premises, or
    2. a cooperative ownership right to a dwelling, the right to a single-family house in a housing cooperative or a share in these rights, or
    3. land or a share in land, a perpetual usufruct right to land or a share in such a right intended for the construction of a residential building, including land or a share in land or a right of perpetual usufruct of land or a share in such a right with the construction of a residential building already commenced, or
    4. land, a share in land or the right of perpetual usufruct of land or a share in such right, related to the building or premises referred to in point (a). and.

However, the taxpayer should remember that the expenses referred to in Art. 21 sec. 25 of the PIT Act, expenses incurred on:

  1. acquisition of land or a share in land, perpetual usufruct right to land or a share in such right, a building, its part or a share in a building, or
  2. construction, extension, superstructure, reconstruction, adaptation or renovation of a building or part thereof

- intended for recreational purposes.

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As indicated by the Director of the National Tax Information in the individual ruling of February 14, 2018, 0115-KDIT2-3.4011.74.2017.1.MJ: the provision of art. 21 sec. 1 point 131 of the Income Tax Act binds the legal effects in the form of tax exemption with the fact of spending - under the conditions specified in the Act - income obtained from the sale of real estate and property rights against payment only for the purposes specified in the provision of art. 21 sec. 25 above the law.

To sum up, a taxpayer wishing to take advantage of the housing allowance must meet the statutory conditions, which are necessary conditions, i.e .:

  1. purchase residential real estate no later than within two years from the end of the tax year in which the real estate was sold for consideration or within this period perform other activities referred to in Art. 21 sec. 1 point 131 of the PIT Act;
  2. allocate the funds obtained from the sale of real estate or other property rights for housing purposes;
  3. residential real estate must be used for the satisfaction of one's own housing purpose, with the exception of the purchase, construction, expansion of residential real estate for recreational purposes or the purchase of land or perpetual usufruct for this purpose.

How should you understand the term "own housing purpose"?

While the clarification of the two-year deadline for the purchase of residential real estate from the moment of the sale of the previous "flat" (flat, single-family house) is not necessary, the interpretation of the statutory term "own housing purpose" raises many doubts.

The above-mentioned individual interpretation of the Director of the National Tax Information indicates that: the legislator, in the provision of Art. 21 sec. 1 point 131 of the Personal Income Tax Act indicated that the proceeds from the sale were to be spent on "own housing purposes". Preceding the phrase "housing purposes" with the adjective "own" proves that the legislator, by providing the basis for the application of the exemption, by adding this adjective, decided that the overriding goal is the possibility of taking into account, when calculating tax-exempt income, only such expenses that were incurred to satisfy " the taxpayer's own "housing needs". (…) It should be clarified that the mere incurrence of an expense for the purchase of a flat and renovation of the house does not prove that the condition for the exemption from tax has been met. The condition for the tax exemption is that the taxpayer demonstrates that the expenditure was incurred to achieve his own housing purposes.

Spending income for own housing purposes means, according to the position presented in the jurisprudence and doctrine, that the purpose of the taxpayer is to meet the need to ensure the so-called "Roof over your head". Administrative courts emphasize that the exemption from taxation of income described in Art. 21 sec. 1 point 131 of the Personal Income Tax Act is of a mixed subject and objective nature. Expenditure of funds for a specific item in conjunction with the function that this item performs for the buyer - satisfying his own housing purposes. In connection with the above, it should be stated that the person who, for example, having his own place of residence, acquires further real estate for the purpose of capital investment, investment in the form of lease, renovation for subsequent resale at a profit or for the realization of the housing needs of others, does not satisfy his own housing purposes. people, such as children or tenants. The mere subjective declarations of taxpayers about the purchase of a flat in order to meet their own housing needs are not sufficient to obtain a tax exemption. It is not enough to make an acquisition expenditure, but it must be done simultaneously in order to meet your own housing needs. A similar position as the Director of the National Tax Information in the individual ruling of February 14, 2018 was previously taken by the Provincial Administrative Court in Białystok in the judgment of May 11, 2016, file ref. I SA / BK 1379/15, which stated that: the assessment whether the Applicant's actions were undertaken in order to achieve "own housing goals" may not be made solely on the basis of the motives declared by the Applicant. Declared motives for action must be confirmed by objective facts. In the light of these assumptions resulting from decoding the meaning of the content of the quoted provision, the person who, like the Complainant, lives in a house in M. and who purchases a flat in B., renovates it in order to rent it, and then alone in him, occasionally resides in connection with his work duties in B. A natural person cannot satisfy his / her own housing needs at the same time in several places, located at a considerable distance from each other.

The above judgment confirms the well-established line of jurisprudence that own housing purposes = provision of a roof over the head by a person benefiting from housing relief.

Source of funds for own housing purposes

In the jurisprudence, there were different views as to the source of origin of funds to be allocated for own housing purposes. Doubts were raised as to the identity of the funds spent, i.e.do they have to be the same funds that a given person received from the sale of real estate or other property rights gathered in one place, or is their value expressed as an amount important. According to the judgment of the Supreme Administrative Court in Warsaw of January 25, 2011, file ref. II FSK 1665/09, it is not important that the taxpayer expends specific financial resources from the revenues referred to in art. 21 sec. 1 point 32 lit. a) the PIT Act [currently Art. 21 sec. 1 point 131 of the PIT Act], but that it would be indisputable that they come from this source, e.g. from the bank account where the income was placed.

In turn, the later judgment of the Supreme Administrative Court in Warsaw of April 20, 2012, file ref. II FSK 2067/10, indicates that from the wording of Art. 21 sec. 1 point 32 lit. A [now Art. 21 sec. 1 point 131 of the PIT Act], it does not follow at all that a necessary condition for obtaining an income tax exemption is the taxpayer's spending only the income obtained from the sale of real estate, and not other funds in his possession, but only the purpose and deadline.

However, the case-law in this respect is not uniform.

Housing relief - is it possible to inherit it?

According to the latest ruling of the Supreme Administrative Court in Warsaw of January 18, 2018, II FSK 3634/16, the right to income tax exemption on income from the sale of real estate referred to in Art. 21 sec. 1 point 131 u.p.d.o.f. [the PIT Act] has a financial dimension and as such may be inherited pursuant to Art. 97 § 1 of the GDPR (...) The death of the testator, however, makes it impossible to achieve his own housing goals. The testator's income from the sale of real estate became an asset component of the estate of the taxpayer's heirs and increased it accordingly. On the other hand, if the income from the sale of real estate was spent by the testator himself for his own housing purposes, there would be a corresponding change in the estate remaining after the testator and subject to inheritance.

The above position of the Supreme Administrative Court confirms the line of jurisprudence presented, inter alia, in the judgments of October 24, 2007, II FSK 1212/06; of November 21, 2012, II FSK 556/11; of November 29, 2017, II FSK 2119/15.