A short guide to the taxes on selling a house

The property has been valued, it's had plenty of viewings, and finally, it’s time t close the deal. But what what taxes does the seller need to take into account?

The choice is made: it's time to sell the house. This significant move starts a new chapter, but it also brings the unavoidable task of navigating the bureaucracy and, especially, taxes. Often, the excitement of the deal and the anticipation of signing the final deed lead sellers to forget a crucial element: the taxes on selling a house.

The fiscal burdens placed on the seller depend on various factors, including the length of property ownership. Specifically, the tax authorities focus on the concept of capital gains. Knowing these elements is essential for planning the transaction well.

What is real estate capital gain?

Capital gain on real estate represents the profit made from selling a property. This happens when the selling price is higher than the original purchase price, following an increase in the property's value.

A home's value can rise due to several factors. The most common include a strong housing market, significant local infrastructure projects or neighborhood revitalization, or direct upgrades to the property that boost its appeal.

When is the capital gain taxed?

Under current tax rules, capital gains on selling a home are subject to taxation if the property is sold within five years of purchase. In this case, the transaction is viewed as speculative, requiring the seller to pay taxes on the profit.

The seller has two ways to pay this tax: the ordinary taxation, which involves reporting the gain in their annual income tax return (dichiarazione dei redditi) and applying the progressive income tax rate (IRPEF, ranging from 23% to 43%), or choose the flat tax of 26%. If they choose the flat tax, the payment is made straight to the notary, who records it in the closing deed and remits it to the Revenue Agency.

When is the capital gain not taxed?

There are specific situations where capital gains are exempt from taxation. For instance, when the home is sold more than five years after the date of purchase, the resulting profit is not taxed.

Furthermore, if the property sold was the main residence for most of the time between the purchase and the sale, then the seller is not required to pay capital gains tax.

Taxes on selling an inherited house

Any profit generated from selling an inherited property is not subject to taxation. This exemption applies even if the property is sold less than five years after the prior owner's death, because the transaction is not considered a speculative operation.

However, the sale cannot proceed until some necessary requirements are met. First and foremost, the inherited property cannot be sold until inheritance taxes have been settled. The specific rate depends on the relationship between the deceased and the heirs. Additionally, the seller must have paid the mortgage and land registry taxes, which are set at 2% and 1% of the property’s value, respectively (a reduction can be requested if the heir qualifies for the first-home tax benefits).

For the sale to proceed, the seller also needs to present the deed of acceptance of the inheritance and the transcription of that acceptance, in addition to covering the expense for the land registry update.

Taxes for selling a gifted house

Regarding the sale of a donated home, the profit realized is only subject to tax if less than five years have passed since the donor acquired the asset. However, if the gifted property was used as the recipient's main residence, the capital gain is never taxed, regardless of how much time has passed.

The recipient (donee) needs to account for a series of expenses associated with the deed of donation. Key among these are the gift tax, which varies based on the relationship between the donor and recipient, the land registry tax (1%), and the mortgage tax (2%). A reduction on these last two taxes is granted if the recipient has registered the property as their primary residence.

Finally, there are the costs associated with securing a specific insurance policy to protect against the risk of future claims being filed by the donor's rightful heirs—a typical challenge in transactions involving gifted property.

Who pays the notary fees when selling a house?

Generally, the notary fees for executing the purchase deed are paid by the buyer, though the parties are free to make an alternative arrangement. For instance, the seller and buyer might insert a contractual clause specifying how the costs will be shared.

In addition to the notary's fee, the taxes due when buying a home include the land registry tax (€50), the mortgage tax (€50), and the registration tax (9% of the property's value, with a minimum of €1,000). If, however, the seller is a business, the rules change: the registration, land registry, and mortgage taxes are all a flat €200 each, and a 10% VAT is applied (or 22% for luxury properties).

Other costs for the seller

The seller will have to cover the expenses needed to make the property is legally ready for sale. These costs typically include:

• - Fees to legalize any irregularities
• - Costs to update land registry records (if required)
• - Fees for mandatory certifications, such as the Energy Performance Certificate (EPC)

**The sole purpose of this article is to provide general information; it cannot in any way replace the advice of a qualified professional.**