Disposal of real estate after a deceased spouse and income tax

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The disposal of real estate after the deceased spouse and taxation have until recently been the subject of a dispute between taxpayers and tax authorities. The discrepancy of opinions concerned the date of purchase of real estate from the deceased spouse. The dispute concerned real estate acquired or built by spouses remaining in joint property.

What is subject to income tax?

Pursuant to the provision of Art. 9 sec. 1 of the Act of July 26, 1991 on personal income tax (i.e. Journal of Laws of 2016, item 2032, as amended), hereinafter referred to as the "PIT Act", all types of income are subject to income tax , with the exception of the income mentioned in art. 21, 52, 52a and 52c and the income from which the tax collection was abandoned pursuant to the provisions of the Tax Code.

Revenue sources

Pursuant to Art. 10 sec. 1 point 8 lit. a-c of the PIT Act, the source of income is, subject to paragraph 2, disposal for consideration:

  • real estate or parts thereof and an interest in real estate,

  • cooperative ownership right to a flat or business premises and the right to a single-family house in a housing cooperative,

  • perpetual usufruct rights to land

- if the sale for consideration does not take place in the course of economic activity and was made within five years from the end of the calendar year in which the acquisition or construction took place.

The above provision formulates a general rule that the sale of real estate, its part, an interest in real estate or the rights listed in Art. 10 sec. 1 point 8 lit. a-c of the PIT Act, before the end of 5 years from the end of the calendar year in which the acquisition or construction took place, it gives rise to a tax obligation in the form of income tax payment. Therefore, if the sale of real estate, its part, share in real estate or rights for consideration takes place after 5 years from the end of the calendar year in which the acquisition took place - it is not a source of income within the meaning of Art. 10 sec. 1 point 8 of the PIT Act, and thus the income obtained from the sale of real estate, its part, share in real estate or rights, is not subject to taxation at all.

In the case of sale of real estate and property rights listed in art. 10 sec. 1 point 8 of the PIT Act, in order to determine its tax consequences, it is therefore important to determine the date of purchase of real estate or rights.

The property community of the spouses

Pursuant to Art. 31 § 1 of the Act of February 25, 1964, the Family and Guardianship Code (i.e. Journal of Laws of 2017, item 682), hereinafter referred to as a code, at the time of marriage, a joint property is established between the spouses by virtue of the act, including property acquired in its duration by both spouses or by one of them (joint property). Thus, statutory community covers all property acquired during its term by both spouses or by one of them. The marital community was formed as a joint community. It is characterized by the fact that during its duration the spouses do not have specific shares in the joint property. They cannot dispose of the shares.

Acquisition of real estate by spouses

Taking into account the above regulations, the acquisition of real estate during the joint property period is associated with the acquisition of this right by each of the spouses. The spouses purchasing real estate during the joint property period do not acquire a fraction of a share. Thus, in the case of the sale of this right, it should be considered that each spouse sells this right in full, and not in a specific share. In summary, marital unity is participatory.

Disposal of real estate after the deceased spouse - determination of the moment

Taking into account the above, it should be considered that in the case of real estate acquired by a spouse as a result of inheritance, the date of their acquisition or construction within the meaning of the PIT Act is the date of acquisition (construction) of these real estate to the joint property of the spouses.

Example 1.

In 1975 Mrs. Barbara and her husband (cohabitation) bought an apartment in a tenement house in Szczecin. In January 2017, Barbara's spouse died. The apartment in the tenement house is very large and the fees associated with its operation are significant. Mrs. Barbara, wanting to reduce her fees, decided to move to a smaller apartment. Therefore, the widow decided to sell the apartment and buy a smaller one. In April 2017, Ms Barbara sold the above-mentioned apartment.

In this case, it should be considered that the acquisition of the common property took place as early as 1975. The sale of the property took place more than five years after the end of the year in which the acquisition took place. In the light of the applicable regulations, the sale of real estate by Ms Barbara is exempt from PIT taxation.

Example 2.

In 2009, the Kowalski family bought a plot of land and started building their own house. The construction was not completed until 2014. In 2016, the spouse had a serious accident and died as a result of the injuries. The widower decided to sell the house and move to his daughter. In 2017, Mr. Kowalski sold the property.

In this case, the period of five years from the date of construction to the date of sale of the property has not expired. The above-mentioned date should be counted from the date the house was built (completion of construction), and not from the date of purchasing the plot and commencement of construction.

The above examples show when real estate purchased or built by spouses is acquired. Until recently, however, it was not so obvious.

Settlement of a dispute between taxpayers and tax authorities regarding the date of real estate acquisition

The dispute between the taxpayers and the authorities was whether the shares in the real estate were purchased again after the spouse's death. The tax authorities believed that a widow or widower would only acquire this portion after the death of a husband or wife. According to the tax authorities, but also some administrative courts, if the real estate was sold and the period of five years from the end of the year in which the spouse died has not passed, such activity is subject to PIT tax.

The above dispute was resolved by the Supreme Administrative Court by issuing a resolution in an enlarged seven-member panel. In the resolution of May 15, 2017, file ref. act II FPS 2/17, we read:

"According to Art. 10 (1) (8) of the Act of 26 July 1991 on Personal Income Tax (consolidated text: Journal of Laws of 2000, No. 14, item 176, as amended) the source of income is also the sale of real estate or rights acquired to joint property for consideration, if the sale takes place before the expiry of five years, counting from the end of the calendar year in which, on the basis of inheritance, the surviving spouse acquired a share in the property or rights acquired to the joint property, in addition to own share after the termination of the joint property as a result of the death of the other spouse, in a situation where five years have passed from the acquisition of the property or the right by both spouses to the joint property?

For the purposes of taxation with personal income tax, the sale of real estate and property rights for consideration, as specified in art. 10 sec. 1 point 8 lit. ac of the Act of July 26, 1991 on personal income tax (Journal of Laws of 2000, No. 14, item 176, as amended) acquired by a spouse as a result of inheritance, the date of their acquisition or construction within the meaning of of this provision is the date of acquisition (construction) of these real estate and property rights to the joint property of the spouses ”.