real estate transfer taxation
Starting from January 1, 2014, new regulations on real estate transfer taxation were introduced. These rules establish different taxation methods based on the type of seller and the nature of the purchase, with the aim of ensuring tax fairness and transparency in real estate transactions. Let’s explore these taxes in detail and the key aspects you need to know to handle a real estate transaction with confidence.
Sale by Private Sellers or Companies (after 5 years from the completion of works)
If the seller is a private individual or a construction company (or one that has renovated the property), and the sale takes place more than 5 years after the completion of the works, the following taxes apply:
- First home (excluding categories A/1, A/8, A/9):
- Registration tax: 2% of the cadastral value.
- Mortgage tax: fixed at €50.
- Cadastral tax: fixed at €50.
- Other types of purchases (e.g., second home or luxury properties):
- Registration tax: 9%.
- Mortgage tax: fixed at €50.
- Cadastral tax: fixed at €50.
The taxable base for the calculation of taxes is the cadastral value of the property, which is determined by applying specific coefficients to the cadastral value recorded in the Land Registry. However, to benefit from tax breaks, it is essential that the actual sale price agreed upon between the parties is stated in the deed. If the real price is hidden or a lower amount is declared than what was actually agreed upon, the tax benefits may be lost. In this case, the registration, mortgage, and cadastral taxes would be recalculated based on the actual sale price, and a penalty ranging from 50% to 100% of the unpaid taxes would also be applied.
Sale by Companies (within 5 years of completion of works)
If the property is sold by a construction company or one that has renovated the property within 5 years of completing the works, taxation is slightly different as VAT comes into play. Here’s how the taxes are calculated:
- First home (excluding categories A/1, A/8, A/9):
- VAT: 4%.
- Registration tax: fixed at €200.
- Mortgage tax: fixed at €200.
- Cadastral tax: fixed at €200.
- Other types of purchases:
- VAT: 10%.
- Registration tax: fixed at €200.
- Mortgage tax: fixed at €200.
- Cadastral tax: fixed at €200.
- Luxury homes (categories A/1, A/8, A/9):
- VAT: 22%.
- Registration tax: fixed at €200.
- Mortgage tax: fixed at €200.
- Cadastral tax: fixed at €200.
In this case, the taxable base for the calculation of taxes is the price stated in the deed, i.e., the actual sale price. If this amount is lower than the so-called "normal value" of the property, the Revenue Agency can rectify the seller's annual VAT declaration. The "normal value" is defined as the price typically charged for similar goods, in the same market conditions and at the same stage of commercialization. Therefore, it is essential that the declared price is realistic and in line with market values to avoid potential tax adjustments.
Purchase with a Mortgage: The Taxable Base
Another relevant aspect concerns purchasing with a mortgage or loan. In this case, the taxable base cannot be lower than the amount of the mortgage or loan granted. For example, if a mortgage of €200,000 is taken out, the taxable base for calculating taxes cannot be less than this amount, even if the cadastral value of the property is lower.
Moreover, if a mortgage or loan is involved, the Revenue Agency is required to consider the loan amount as the "normal value" of the property for tax purposes, thereby reducing the possibility of declaring a lower amount than what was actually paid.
Substituted Declaration of Notoriety
During the signing of the purchase deed, both the seller and the buyer must include a substituted declaration of notoriety, which specifies several key elements:
1. Payment methods: The methods used for payment (check, bank transfer, etc.) must be indicated.
2. Mediation activities: If a real estate agent was involved in the transaction, their tax information (VAT number or tax code) must be provided.
3. Mediation expenses: The mediation costs and the payment methods must be indicated.
Attention: Failure to declare or providing false or incomplete information results in criminal penalties and may lead to a value reassessment by the Revenue Agency. Essentially, if the information provided is incomplete or incorrect, the Agency may decide to tax the property based on its market value rather than the cadastral value declared in the deed. In this case, the taxes could be significantly higher than those initially expected. Furthermore, an administrative penalty ranging from €500 to €10,000 may be imposed.
Tax Deductions for Real Estate Commissions
Lastly, it is possible to benefit from a tax deduction for expenses incurred for commissions paid to real estate agents. In fact, you can deduct 19% of the fees paid for purchasing your primary residence from your personal income tax (IRPEF), up to a maximum of €1,000. This deduction can only be used in a single tax year. If the purchase is made by multiple owners, the deductible amount will be divided proportionally based on each owner's share of the property.
Conclusion
The new tax regulations that came into effect in 2014 have introduced a structured taxation system for real estate transfers, which takes into account the type of seller and the nature of the property being purchased. It is important to be aware of these rules to avoid penalties and ensure the correctness of the transactions. Compared to the past, these rules encourage transparency in real estate transactions by requiring precise and truthful information in the deeds of sale.
