Taxation after the sale of real estate - information

04/05/2023

Taxation after the sale of real estate depends on two things: the tax rate and the tax base. So it is not enough to look at the actual SZJA, but also to follow the change in the tax base: in recent years, the tax base has increasingly shown a decreasing trend.

Property tax is not the same as building tax

Property tax should not be confused with building tax.

The building tax is a type of tax that we pay to the local government, regardless of whether the subject of the tax is a residential or non-residential building, or a part thereof.

The building tax is paid by the person who is the owner of the property on the first day of the calendar year, or who has property rights, such as usufruct rights, to the property. In the case of several owners, the tax must be paid in proportion to the ownership shares.

The tax is paid in two installments: until March 15 and September 15. It is important that after the sale of the property, the previous owner must also pay the tax for the given year. Exceptions are cases where the parties have stipulated in the sales contract that the buyer will assume the tax burdens arising in connection with the property.

Costs of selling real estate

In contrast to the above, the property tax must be paid only in case of sale and only in the event that a profit is generated on the property.

In the case of a loss-making sale, for example someone sells a property bought for HUF 30 million for HUF 25 million, then you do not need to pay real estate tax.

Real estate taxation: real estate sale SZJA

There is currently a single-rate personal income tax of 15%. During the sale of real estate, we generate income, after which we need to pay personal income tax.

The tax base

The formula for the tax base is simple:

Sale price - purchase price - eligible costs = tax base

The rate of real estate tax is obtained by multiplying the above tax base by 0.15, thereby calculating the 15% SZJA.

In addition to all this, the tax base is constantly decreasing every year.

In the year following the acquisition, the tax base is 100% of the value of the property, which

in the second year to 90%
in the third year to 60%,
in the fourth year to 30%,
and it drops to 0% from the fifth year.

Many people ask how the property can be sold tax-free: the answer is that over time the tax base decreases and then becomes zero.

Eligible cost examples

It is important to note that these costs can only be settled against an invoice.

the amount spent on acquisition (for example, the amount of the tax),
value-adding investments,
expenses related to the transfer (for example, the lawyer's fee) in proportion to the part of the income corresponding to the date of acquisition, including amounts paid with proof based on the obligation undertaken towards the state in relation to the given property (for example, the fee for the administration of the Land Registry),
but also the fee for real estate ads or brokers.

How much tax do you have to pay? A specific example

In November 2017, you bought an apartment for HUF 41,600,000. You have now sold this property for HUF 47,800,000. In this case, taxation is as follows.

The year of acquisition is 2017, so this is year 0. Compared to this, 4 years have passed ('18 '19 '20 '21), so according to band taxation, it falls to 30%.

Expenses that you can prove with an invoice can be settled with this:

4%tax - HUF 41.6M * 4% = HUF 1,664,000
Lawyer's fee - HUF 100,000
You renovated the kitchen and replaced the windows - HUF 800,000
Total: HUF 2,564,000

47,800,000 - 41,600,000 - 2,564,000 = 3,636,000 * 30% = HUF 1,090,800 * 15% = HUF 163,620

In this specific example, you should pay this much tax.

For a quick check, I recommend the calculator available on the website of the National Tax and Customs Office.

Tax after the sale of real estate: who pays?

After the sale of real estate, the tax is paid by the buyer, this cost is not borne by the seller. The current amount of the retroactive property transfer tax is 4% of the purchase price. This will later, as I wrote above, become an eligible expense when the property is sold.

Taxation on inherited property

The inherited property cannot be traded until the probate procedure has been completed - only then can the inherited property be sold. If the procedure has been completed and the probate order has been received, and the new owner has been registered in the land registry, the property becomes marketable. Before the sale, we also have to pay the inheritance tax, which is currently 9% of the property's estimated value during the probate process, and is tax-free in the case of direct heirs.

After that, the above already applies: the tax base for the sale of the inherited property changes continuously within 5 years, and after 5 years it is 0%.

As for the tax base: if the value of the property is determined in the inheritance, it is considered the tax base, but if there is no such amount, the value of the property is determined by a valuation during the probate process. The heir can appeal against this. After the value has been determined, the same rules apply to the inherited property as above (ie, with deductible expenses, and if it is sold cheaper, tax-free).

Taxation after the sale of real estate: the most important

Before selling the property, you should consult a real estate expert. Waiting 5 years to sell your property does not always mean savings. If, for example, you reduce the tax base from 100% to 0%, but real estate prices are currently showing a downward trend, and you don't wait, you may conclude a loss-making deal overall.

Once again, the details are in the details: feel free to contact me!