In this brief contribution, we would like to summarise the essential aspects relating to income tax of natural persons and the sale of immovable property.

The sale of immovable property is subject to income tax as so-called other income, which is specified in the provision of Section 10 of the Income Tax Act. However, not every sale of immovable property will be subject to income tax, as the Income Tax Act exempts a large proportion of transfers of immovable property from tax.

The following transfers of immovable property are exempt from income tax of natural persons:

1. Income from the sale of a family house and related land or a unit which does not include non-residential space, and related land, provided that the seller had his or her residence therein for at least 2 years immediately prior to the sale.
2. Income from the sale of a family house, a unit which does not include non-residential space, or a co-ownership share and related land, provided that the seller had his or her residence therein immediately prior to the sale for a period of less than 2 years, shall be exempt in the event that the seller uses the proceeds obtained from the sale to satisfy his or her housing needs (most commonly for the purchase of another family house or unit). However, the above exemptions shall not apply in certain cases, namely when the immovable property formed part of the seller’s business assets and also in cases of future sale of immovable property where the conclusion of a contract for a future purchase contract occurred within 2 years of the acquisition of ownership rights to the immovable property. 3. Furthermore, income from the sale of immovable things is exempt if the period between the acquisition of ownership rights to such immovable things and their sale exceeds 5 years. In the case of acquisition of immovable property by inheritance from a relative in direct line (e.g. parents, grandparents and children) or from a spouse, the five-year period includes the period during which these relatives owned the immovable property. In the case of the sale of land acquired by exchange from a land office, the five-year period also includes the period during which the seller owned the land which was the subject of exchange within the framework of land adjustments.

However, this exemption does not apply to the following situations:

• income from the sale of immovable things which are or within 5 years prior to the sale were included in business assets,
• future sale of immovable things effected within 5 years of the acquisition of ownership rights to such immovable things, even if the purchase contract is concluded only after 5 years from such acquisition,
• future sale of immovable things effected within 5 years of their removal from business assets, even if the purchase contract is concluded only after 5 years from such removal,
• and sale of the right to build, unless a building complying with the right to build has been established.

In conclusion, it must be noted that in the event that income from the sale of immovable property is not exempt according to the above rules, such income for the tax base shall be reduced by expenses demonstrably incurred in achieving it. In the case of immovable property, such expense is therefore the price at which the seller acquired the immovable property, and if he or she acquired it gratuitously, the expense shall be the price determined according to the special Act on Valuation of Property. A seller who sells his or her immovable property for less than he or she acquired it will therefore not have to pay income tax on the sale of the immovable property.

Mgr. Ondřej Bahník

The contribution was originally published in the Real Estate Magazine of Česká Spořitelna.

This text was translated from Czech to English using an AI translator.