The Tax Authority warns that renting out a home before selling it may remove the exemption from IRS on capital gains, even if the tax address is maintained.
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Author: Redaction
Anyone who rents out a home before selling it loses IRS capital gains exemption
Anyone who places their main private residence on the rental market before selling it may lose the exemption from IRS on capital gains. The Tax Authority clarifies that maintaining the tax address does not, on its own, guarantee access to the exemption from IRS on capital gains. The decisive factor is the effective use of the property as a main private residence in the 12 months prior to the sale.
Legal conditions for IRS capital gains exemption
The exemption from IRS on capital gains depends on cumulative requirements set out in the Personal Income Tax Code. To benefit from the exemption from IRS on capital gains, the proceeds from the sale must be reinvested in the purchase of another main private residence, land for construction or renovation works. In addition, the intention to reinvest must be declared in the IRS return. The reinvestment period for the exemption from IRS on capital gains runs between the 24 months before and the 36 months after the sale.
Main private residence and loss of benefit
The Tax Authority defines a main private residence as the place where family life is stably centred. When the property is rented out, it no longer meets this requirement, potentially jeopardising the exemption from IRS on capital gains. Even if the tax domicile remains unchanged, this is not sufficient to guarantee the exemption, as the effective use of the property is decisive.
Tax risk when renting before selling
Renting out the home before selling it may change its tax classification and lead to the loss of the exemption from IRS on capital gains. The Tax Authority’s interpretation reinforces that the exemption from IRS on capital gains depends on the actual use of the property as a main private residence. Therefore, any decision to rent it out beforehand should be carefully assessed, as it may result in the loss of the associated tax benefit.
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