When are you exempt from income tax from the sale of an inherited property in 2022?

Nemovitost z pozůstalosti

Under Section 4 of the Income Tax Act, you are exempt if you have owned a property or cooperative apartment for more than 5 years. For details, see the article What is income tax on the sale of a property.

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When are you exempt from income tax from the sale of an inherited property in 2022?

Under Section 4 of the Income Tax Act, you are exempt if you have owned a property or cooperative apartment for more than 5 years. For details, see the article What is income tax on the sale of a property.

Here, we will focus only on the specific provisions of the Income Tax Act concerning the taxation of income from the sale of inherited real estate.

If you sell a property that you inherited from a testator who was a direct relative or spouse, the five-year period includes the time when the property was demonstrably owned by the testator.

Who are relatives in the direct line?

Relatives in the direct line are children, grandchildren, parents, grandparents. They are members of the family, where the family tree goes down (from father to son), but also up (from son to father). Siblings, uncles, aunts, nephews, and nieces are not direct, but subsidiary.

What is the rate of income tax

Income tax is 15%. Income from a property sale is calculated as the selling price minus the estimated price as determined in the inheritance proceedings minus other costs related to the acquisition or investment in the property (eg fees, for a lawyer, real estate agent, etc.)

Example 1

Mr. Krupička inherited an apartment from his grandfather in Brno. Mr. Krupička lives in Prague, he had no use for the apartment, he did not want to rent it due to the distance. So he decided to sell it. His grandfather lived in the apartment for the last 15 years before his death. In this case, Mr. Krupička did not pay income tax, because the period for exemption also includes the 15 years when his grandfather lived there. Mr. Krupička therefore met the legal condition of 5 years and sold the apartment without having to pay income tax.

Example 2

Mrs. Loukotová and her husband bought an apartment a year ago. Unfortunately, Mr. Loukota suffered a heart attack and died. For Mrs. Loukotová, the apartment is unnecessarily large, expensive, and she also reminds her of her husband. So she decided to sell the apartment and move back to her hometown, where she has family and friends. Mr. Loukotová’s share in the apartment went to Mrs. Loukotová as part of the inheritance proceedings. The Loukots bought the apartment for 2.5 million. This price was also determined in the appraisal of the property during the inheritance proceedings. When they bought the property they paid 100,000 Czk in real estate acquisition tax. A year later, she managed to sell the apartment for 2.7 million. The taxable income is calculated as follows: 2,700,000 – 2,500,000 – 100,000 = 100,000 Czk. She will therefore pay 15% of 100,000 Czk in income tax, i.e.15,000 Czk. If Mrs. Loukotová had other expenses associated with the transaction, for example in hiring a lawyer or a real estate agency, she could reduce the tax base by these expenses. She could also reduce the tax base by the cost of any reconstruction she had done.

Example 3

Mr. Zdeněk Kulihrášek shared an apartment with his brother Jaromír Kulihrášek. When Jaromír (a batchelor without children) suddenly died Zdeněk inherited his brother’s half of the apartment as their parents were also dead. Jaromír had lived in the apartment for 25 years. However, Zdeněk is not a direct heir and therefore is not covered by the income tax exemption. Zdeněk received an offer to buy the property for 3 million. However, the estimate of the property’s value during the inheritance proceedings was 2.8 million. If Zdeněk decides to sell the apartment at this price, his taxable income would be 3 million – 2.8 million. i.e. 200,000 thousand krowns. Income tax at 15% amounts to 30,000 Czk. As Zdeněk does not need the money and, moreover, does not want to pay tax, he decides to rent the apartment for 5 years and then sell it.

How to pay income tax on the sale of real estate

You can calculate the income tax from the sale of real estate in your income tax return, which you must file with the relevant tax office by 31 March for the previous calendar year. You must also pay the income tax by this deadline.

Obligation to notify the Tax Office

If you acquire real estate worth more than five million krowns, you, as the heir, are obliged to notify the tax office of this fact.

Failure to file will result in a fine of 0.1% of the amount of undeclared income if you comply with this obligation after the deadline without being prompted to do so by the tax administrator.

You risk a fine of 10% of the amount of undeclared income if you submit the Notification only at the request of the tax administrator.

A fine of 15% is possible to those who try to avoid the tax office’s attempts to get in touch.

Are you considering selling an inherited property and don’t know if you are subject to income tax or not?

Then get in touch with us. We work with tax advisors, so we can answer any questions you may have about taxes and real estate sales.

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