What Taxes Apply?

The purchase and sale of real estate is a process that brings with it numerous legal and financial aspects, including the payment of various taxes. For every owner who decides to transfer their property, understanding the taxes due is essential. In this article, we will look at the main taxes related to the purchase and sale of real estate, as well as the key aspects of their application. 

Local tax on property purchase

When and who pays the tax under the Local Taxes and Fees Act (ZMDT)? When concluding a property purchase transaction, one of the obligations of the new owner is to pay the local tax on its acquisition. The amount of the tax is determined annually by each municipality in the country. Usually, it is between 0.1 and 3% of the sale price or the tax assessment, as in Sofia, for example, the local tax has been 3% since the beginning of 2020 to the present. For the calculation, the tax assessment is used only in cases where it is higher than the sale price. Local taxes are paid in the relevant municipality where the property is located.

Tax on profit from the sale of real estate

When selling real estate, the seller realises income that is taxed under the Personal Income Tax Act (ZDDFL) and the Local Taxes and Fees Act (ZMDT). However, there are various circumstances under which income from a sale may be exempt from tax.

Under what circumstances do we NOT owe tax on profit from the sale of a property

Tax exemption applies to the sale of one residential real estate property if more than three years have passed between the date of purchase and the date of sale. Here, one of the mandatory legal conditions is that the property must have residential status. 

Income from the sale of no more than two real estate properties (including agricultural and forest land) is also not taxed if more than 5 years have passed between the date of purchase and the date of sale of these properties. It is important to know that for agricultural and forest properties, the tax exemption is not tied to a specific number of properties, i.e. their number may be unlimited, as long as the condition for ownership for more than 5 years is met. Income acquired in the two situations described above is not subject to tax within the meaning of Art. 13, para. 1, item 1 of the Personal Income Tax Act (ZDDFL).

Pursuant to Art. 13, para. 1, item 26 of ZDDFL you do not owe tax if you sell a property that you acquired by inheritance or bequest. For this type of transaction, it does not matter whether the property is classified as residential real estate or is simply real estate. 

Under what circumstances do we owe tax on profit from the sale of a property

In all other cases except those listed above, including the sale of property acquired by gift, the seller must pay tax after the transaction is completed. Such tax is due only when there is income realised from the sale of the property. Realised income is the positive difference between the sale price and the purchase price. So, for example, if you sell something for the price you bought it for and have not made a profit or are even at a loss, then you do not have to pay tax.

Useful information

When income from the sale of a property is subject to taxation, an annual tax return under Art. 50 of ZDDFL must also be filed. It can be filed in several ways: online, with a personal identification code (PIC) from the NRA or with a qualified electronic signature (QES); by post with return receipt; in some post offices; at the NRA territorial directorate at the permanent address.