Discover the exemption for reinvestment in the habitual residence

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reinversión en vivienda habitual

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Have you decided to sell your primary home to buy another one?

If your answer is affirmative, you should know the exemption for reinvestment in the habitual residence in personal income tax. In this article we tell you all the details so that you can benefit from the exemption and pay less taxes.

Imagine the following case: Pedro bought a house in Sant Gervasi – Galvany, which is his habitual residence, in 2004 for 150,000 euros. In 2022 he decided to sell it and, due to the increase in prices, the sale price was 200,000 euros, so he obtained a capital gain of 50,000 euros. In the same year, 2022, he decides to buy another larger home in the same neighborhood and invests the 50,000 euros he obtained in buying the new house that he will use as his habitual residence.

Based on this assumption we are going to analyze the exemption for reinvestment in habitual residence.

What is the exemption for reinvestment in habitual residence?

The exemption for reinvestment in a habitual residence is regulated in article 38.1 of the Personal Income Tax Law, which establishes the following:

1. Capital gains obtained from the transfer of the taxpayer’s habitual residence may be excluded from taxation, provided that the total amount obtained from the transfer is reinvested in the acquisition of a new habitual residence under the conditions determined by regulation.

When the reinvested amount is less than the total amount received in the transfer, only the proportional part of the capital gain obtained that corresponds to the reinvested amount will be excluded from taxation.

Therefore, the exemption for reinvestment in a habitual residence is a tax benefit that means that the capital gain derived from the sale of your habitual residence is exempt from personal income tax if you reinvest it in buying another habitual residence or in rehabilitating a new habitual residence.

Based on the above, it is necessary to be clear about the concept of habitual residence. From a tax point of view, a habitual residence is a building in which the taxpayer resides for a continuous period of at least three years. Regarding the home that is acquired, it will be considered habitual if it is effectively and permanently inhabited by the taxpayer within a period of twelve months from the date of acquisition or completion of the works.

What requirements must be met to apply the exemption for reinvestment in habitual residence?

To apply the exemption for reinvestment in habitual residence in personal income tax, it is necessary to meet a series of requirements that are as follows:

– That the home you sell is a habitual residence. To do this, as we have seen in the previous section, you must have lived there for a continuous period of at least three years.

– That the home you buy also be considered a habitual residence.

– That the reinvestment be carried out within a period of two years, which may be before or after the sale of the initial habitual residence.

Frequently asked questions about the exemption for reinvestment in habitual residence
In relation to the exemption for reinvestment in a habitual residence, you may have doubts regarding its application. Below, we answer the most frequently asked questions:

Does the exemption apply automatically?
The exemption is not applied automatically, but must be requested by including the sale of the habitual residence in the income tax return for the corresponding fiscal year. If at that time you have not yet reinvested the money, you can declare your intention to make the reinvestment later.

If I get divorced or have to move for work and stop living in the home: is it considered my habitual residence?

There are various cases in which you can benefit from the exemption, even if you have not lived in your habitual residence for three years. They are the following: divorce, marriage, job transfer and illness or disability requiring a change of address. In the event that you find yourself in any of these cases, it is recommended, however, that you consult with the Tax Agency about the application of the exemption.

The regulation on this situation is found in article 41.bis.1 of the Personal Income Tax Regulations, which establishes the following:

However, it will be understood that the home was considered habitual when, despite the said period not having elapsed, the death of the taxpayer occurs or other circumstances arise that necessarily require the change of address, such as celebration of marriage, marital separation. , job transfer, obtaining the first job, or change of job, or other justified analogues.

What happens if I apply for the exemption and then fail to comply with the conditions?

If you fail to comply with the conditions to apply the exemption, you must pay tax on the capital gain obtained. In this case you will have to present a complementary settlement and include late payment interest.

Does the exemption apply in cases of new construction or self-promotion housing?

In these cases the exemption can be applied, but the Supreme Court establishes two requirements:

– The amount obtained from the sale must be reinvested within two years.

– The works must be completed within four years from the acquisition of the property where the home will be built. This period can be extended in two cases:

– If the promoter is in bankruptcy.

– If exceptional circumstances beyond the control of the owner occur that result in a cessation of the works.

What happens if I buy the new primary home with a mortgage?

It is quite common that, as a buyer, you request financing to purchase your new primary home. In this case, the reinvestment exemption also applies, even if money is obtained from a third party, either by requesting a loan or by subrogation on an already existing loan.

Article 41.1 of the Personal Income Tax Regulations establishes the following:

When the taxpayer has used external financing to acquire the transferred home, the total amount obtained will be considered, exclusively for these purposes, the result of reducing the transfer value in the principal of the loan that is pending amortization at the time of the transfer. .

It may also happen that you repay the mortgage loan on your previous primary residence with the money you obtain from the sale. In this case, the amount obtained is considered to be the money from the sale minus the amount that remains to be amortized. For example, if María bought her home in 1999 for an amount of 200,000 euros and sold it in 2022 for 250,000 euros, but she allocates 30,000 to pay off the loan on her previous home, she will allocate 20,000 to the purchase of the new home and that amount will be what can be deduced.

Can I apply for the exemption if I pay the purchase price of my new habitual residence in installments?

Yes, the exemption can be applied, as long as the amount of the installments is used to purchase the new primary home. In short, if you want to apply the exemption for reinvestment in a habitual residence, it is important that you seek advice to verify that you meet the requirements and avoid additional declarations, surcharges and penalties.

At PRODDIGIA we put at your disposal a team of experts who will be able to analyze your case, verify if you meet the requirements and carry out all the procedures for the sale and purchase of your usual homes.

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Ana Vila

Ana Vila

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