Sale of home before 12 months may trigger capital gains tax, even with an increase in household size, according to the Tax Authority.
Source: Adobe Stock
Author: Redaction
Sale of home before 1 year subject to tax
Sale of home before completing 12 months as primary residence may result in capital gains tax in IRS. The Tax Authority (AT) is applying stricter rules, requiring compliance with the minimum period even in relevant family situations.
This interpretation limits access to the capital gains tax exemption on the sale of home, making it more difficult to benefit from the tax regime in short-term transactions.
Household increase does not guarantee exemption
Sale of home before one year, motivated by the birth of a child, does not always avoid capital gains tax. The AT considers this situation only exceptional if it occurs after the acquisition and use of the property as primary residence.
If the child is born before the purchase, it is no longer considered an unforeseen event. Thus, the sale of home in these conditions does not benefit from tax exclusion and remains subject to IRS.
Minimum 12-month period is mandatory
With recent legal changes, the minimum period to avoid capital gains tax on the sale of home has been reduced from 24 to 12 months. However, this period remains mandatory to access the reinvestment regime.
The AT clarifies that the period only starts counting from the date of property acquisition. In other words, the sale of home before completing this period does not meet the requirements, even if the taxpayer already lived in the property previously.
Reinvestment rules remain strict
To avoid paying capital gains tax on the sale of home, several conditions must be met. The property must be a primary residence for at least 12 months, and the sale value must be reinvested in another home with the same purpose.
In addition, the sale of home requires reinvestment within legal deadlines and that intention must be declared. Otherwise, gains are subject to IRS.
This interpretation reinforces that the sale of home before the deadline will only be accepted in truly unexpected situations occurring after the property purchase.
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