PIT housing relief and expenses entitling to the exemption - part 3


The real estate market is characterized by diversified dynamics related not only to the rate of wage growth, but also to the investment possibilities of developers. Both buyers and sellers of real estate want to make every transaction as profitable as possible. One of the statutory benefits of tax exemption is the PIT tax relief. However, in many cases it is not easy to apply. Therefore, it is worth analyzing specific cases that may turn out to be the same or very similar to many situations in which taxpayers selling and purchasing non-commercial real estate are or will find.

Housing relief in PIT

A taxpayer who has acquired all or part of the real estate and sells it within 5 years may benefit from the exemption from the obligation to tax the PIT tax for a given sale (in whole or in part), if he spends the funds obtained from it (in part or in full) on the so-called own housing purposes over a period of 3 years (2 years - legal status until the end of 2018) counted from the end of the year in which the sale took place.

Problems with identifying expenses that qualify for tax exemption

The legislator included in the provisions of the PIT Act the main framework of expenses deemed to be incurred for own housing purposes. However, their proper identification, i.e. more detailed identification, is very problematic. Tax officials often have doubts as to the eligibility of these expenses when the taxpayer requests the tax authorities. In addition, a very large number of applications to the National Revenue Administration is the best proof of how huge the problem is, especially with the accurate and correct qualification of expenses incurred for own housing purposes.

PIT housing relief - specificity of expenses for own housing purposes

The legislator established in Art. 21 sec. 25 of the PIT Act, a general catalog of types of expenditure constituting the so-called expenses for own housing purposes for the application of the exemption from the sale of real estate not related to business activity.

Unfortunately, the catalog is so general that the enormity of taxpayers has serious problems with correctly distinguishing whether a given expenditure will be an expense for own housing purposes or not.

There can be many doubts, e.g. the issue of location of the property, purchase of land, receipt of old inheritance properties, future profit-making goals of the newly acquired property and a lot of others.

The problem is also associated with a small period of time for spending funds from the sale of real estate, which is 3 years from January 2019 and 2 years by the end of December 2018.

Example 10

After the death of his wife, the taxpayer sold a single-family house in 2018. The funds obtained from the sale were allocated to the purchase of two apartments also in 2018. However, after acquiring the ownership right to the apartments, the taxpayer did not decide to live in any of them and stayed at his parents' house. The taxpayer does not intend to rent the purchased apartments. The purpose for which they were acquired is an investment in the future, i.e. capital investment. In this case, will the expenditure on these flats fulfill its own housing purpose? Can a taxpayer purchase two residential properties under a housing allowance?

In this case, there is considerable doubt whether the purpose of spending funds from the sale of the house will be considered as own housing purpose due to the fact that the taxpayer does not fully pursue the housing purpose, does not live in any apartment and the purpose of their purchase remains an investment purpose (investments, value gain). , etc.). On the other hand, the implementation of one's own housing goal should focus on the purchase of real estate or its construction in order to live in it. Notwithstanding the foregoing, the taxpayer has the right to purchase two residential properties under the housing relief, but the exercise of this right in the above circumstances will not be possible.
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Example 11

In March 2016, the taxpayer and his sister received a 50% share in the apartment by way of a donation. By the end of 2016, the taxpayer had sold his share in the apartment and allocated it to divide the building belonging to his in-laws into two apartments, one of which is to be inhabited by the taxpayer and his wife. The extension was completed in March 2019, while the in-laws donated the entire building to the taxpayer. The taxpayer has doubts as to the applicability of the housing relief.

Unfortunately, the taxpayer will not be able to take advantage of the housing relief for spending funds on the extension of the building of his mother-in-law, which he then received in 2019 in the form of a donation.

Within 2 years (for the sale before 2019, the legal status was still in force as at December 31, 2018), the taxpayer was obliged to spend the funds obtained from the sale of a 50% share in the apartment if he wanted to take advantage of the housing allowance. He made an extension of the building of his in-laws. However, in the same 2-year period, counting from the end of the year in which the sale of 50% of the shares in the property took place, the taxpayer did not become the owner of the separate premises. Therefore, in this situation, the taxpayer will not benefit from the tax relief in question.

It is worth noting that if the sale of a share in the property took place in 2019, then the taxpayer would have a 3-year period to become the owner of the extended building or part of it.

Example 12

In 2015, the taxpayer and his wife purchased a flat, the purchase of which was financed with a loan in Swiss francs. In 2018, however, the taxpayer and his spouse decided to sell it due to the deteriorating financial situation. Will the taxpayer be able to use the funds obtained from the sale of a given flat to repay the loan in Swiss francs?

Unfortunately not. The funds obtained from the sale of a residential property or participation in it should be used, for example, for the purchase of another property, repayment of a loan related to a property other than the one sold, purchase of other land not related to recreational purposes but intended for residential purposes (e.g. building a house) or even for repayment a loan taken before the sale of the property to pay off another loan relating to the acquisition of a new residential property.

Thus, the funds obtained from the sale of the flat cannot be used by the taxpayer to repay the loan related to the flat being sold.

Example 13

In 2010, the taxpayer purchased a flat. The purchase was financed by the taxpayer's savings. In 2017, he inherited another apartment from his deceased sister. However, he decided to sell the apartment this year. He wants to use the funds from this sale to renovate the flat in which he lives, buy land and build a house. For this purpose, the taxpayer took out a mortgage before selling his brother's apartment. In the course of repaying the loan, the taxpayer also regulates insurance premiums for the protection of the property under construction against random events and against its impairment. The taxpayer has doubts whether, in addition to the loan and interest on it, he will be able to recognize insurance premiums as expenses for his own housing purposes?

Unfortunately not. In art. 21 sec. 25 of the PIT Act, the legislator does not mention premiums for the insurance of the credited real estate or any other as an expenditure intended for own housing purposes and at the same time reducing the tax base of the real estate being sold.