How to calculate the amount of a real estate capital gain?

The calculation of the sale priceExpenses to addExpenses to deduct

Calculation of the acquisition pricePurchase costsFree transmission costsWorks

Real estate capital gain calculation simulators

Real estate capital gains: a more complicated calculation than it seems

At first glance, calculating the capital gain realized on the sale of a home seems simple. It is enough to make a very basic subtraction, namely: selling price – initial purchase price.

But in fact, this elementary calculation does not allow a seller to know precisely his capital gain (or capital loss if applicable). In fact, if he proceeds in this way, the seller excludes all the costs arising from the transaction, such as real estate agency fees if he has called on the services of a professional to find a buyer or even the fees of the notary. Likewise, such a simple calculation does not factor any seller-financed work into the equation.

It is therefore necessary to properly determine the sale price or transfer price as well as the initial acquisition price before embarking on a calculation of real estate capital gain.

Namely: the result of this operation is subject to income tax and social security contributions if the property sold is not the main residence of the owner. The real estate capital gain collected on the resale of the main residence benefits from a complete tax exemption. Conversely, any capital gain from the sale of a rental investment, a second home and a house or apartment received as an inheritance or gift is taxable.

To go further, our article on the taxation of real estate capital gains

Calculation of the sale price or transfer price

The starting price

In order not to be mistaken, it is necessary to rely on the actual sale price as indicated on the authentic deed signed before the notary.

Charges and indemnities paid by the buyer to be added to the sale price

Taxes on the purchase of real estate

The sale price used to determine the capital gain is increased by the land registration tax or the registration fee levied during the transaction. This is called transfer duties against payment (DMTO), often incorrectly referred to as notary fees. In reality, these are taxes collected by various public bodies, namely:

– Departments that collect land advertising tax or registration fees (maximum rate applied in 96 departments in 2017: 4.50% of the sale price) – Municipalities or departmental equalization funds that recover 1.20% of the price (additional tax to registration fees) – The State, which levies 2.37% of the sums collected by the departments for tax recovery.

For the purchase of an old home, the DMTO represent up to 5.81% of the price. In other words, the starting sale price is increased by almost 6%.

Expenses borne by the buyer

In addition to taxation, the buyer may also bear additional charges agreed in the authentic deed of sale. If this is the case, the cost of these charges is added to the sale price used to calculate the capital gain. Only the expenses imposed on the buyer in the authentic deed are to be taken into account.

According to Article 683 of the General Tax Code, “all indemnities stipulated for the benefit of the transferor, in any capacity and for any reason whatsoever” are covered. The Official Bulletin of Public Finances (BOFiP-Impôts) specifically points out the following expenses:

– Reimbursements charged to buyers (part of the property tax or housing tax for a sale during the year, for example) – The cost of building a dividing wall imposed as part of the sale– The cost linked to a clause for indexing the sale price granted in return for partially deferred payment*– The eviction indemnity paid to the tenant when the purchaser takes care of “removing” him for the seller's account.

VAT and costs to be deducted from the sale price

VAT

When buying a new home presented on plans, such as a Vefa apartment (sale in the future state of completion), the purchaser is subject to VAT. The value added tax does not correspond to an element of the real price of the property, it is to be deducted from the sale price.

Note: in this configuration, the buyer subject to VAT pays acquisition costs (DMTO) reduced by only 0.71%.

VAT is fully deducted from the sale price when the accommodation is sold more than five years after its acquisition. In the event of faster resale, it remains subject to VAT and the owner must proceed to an adjustment: he pays the VAT levied on the occasion of the resale to the State after deduction of that paid at the time of the sale. original purchase.

Example

An individual buys a new apartment off-plan and pays 25,000 euros in VAT on this occasion. He resells four years later and this transaction generates VAT of 35,000 euros. The individual will then have to pay 10,000 euros of VAT to the State (35,000 – 25,000) and deduct this amount from the sale price.

If he had sold his apartment after six years, he would have had to pay nothing in this respect and could have deducted 35,000 euros from the sale price.

Important: only homes purchased off-plan and resold within five years are affected. Owners of old homes or houses they have had built do not have to worry about VAT.

The costs borne by the seller

Certain acquisition costs paid by the seller must be deducted from the final sale price used to determine the capital gain. The General Tax Code (article 41 duovicies H) precisely and exhaustively lists the following expenses:

– Real estate agency fees, when the seller entrusts a sales mandate to a professional – Costs related to the diagnoses required by law to sell the accommodation – Eviction compensation paid by the seller to a tenant installed in the accommodation – The fees of an architect requested to obtain a building permit – Mortgage release costs (notarial deed releasing the property from any mortgage).

The deduction of these costs is only allowed if the seller can justify the amounts advanced at the request of the tax authorities.

Calculation of the initial acquisition price

The starting price

As soon as the property was initially purchased by its owner (and not inherited for example), the acquisition price used to calculate the capital gain on resale corresponds to that entered in the authentic deed of sale.

If the accommodation was acquired free of charge, as part of an inheritance or a gift for example, the market value must be used to calculate the inheritance or gift tax (transfer tax as free).

This starting price is then increased by the purchase or inheritance/donation costs and any work carried out between the initial acquisition and the resale of the property.

Purchase costs

To determine the acquisition costs, the owner can use two methods. It can be based on a fixed amount corresponding to 7.5% of the purchase price. This method is accepted regardless of the actual amount of the fee. It is recommended to use it if the owner is unable to justify the actual acquisition costs.

If the costs can be precisely identified and justified at the request of the tax authorities, the following must be taken into account:

– Registration fees and VAT if applicable, if it has been paid by the owner – Real estate agency fees – Notary fees.

Free transmission costs

In the context of an inheritance or a gift, the acquisition costs must be taken into account for their real amount. It's about :

– Deed and declaration costs, notary fees included – Inheritance tax or gift tax (depending on the situation). Only transfer duties relating to the property transferred are taken into account in the context of an inheritance.

Please note that only the expenses actually borne by the heir or the donee should be retained. If the donor pays the fees himself, for example, they are not counted.

The works

Certain work carried out between the initial acquisition and the resale of the property may be taken into consideration in determining the purchase price to be used to calculate the capital gain.

15% flat rate

Any owner who resells his property after five years of ownership may increase the acquisition price by 15% by virtue of the work. And this, independently of the realization of said works. "As soon as the condition relating to the holding period is met, the seller can benefit from the 15% flat rate without having to establish the reality of the work", indicates the BOFiP-Impôts.

Actual expenditures

If he is able to justify the expenses advanced in the event of a request from the tax authorities, the owner may increase the purchase price by the amount of the work actually carried out in the accommodation. The General Tax Code (article 150 VB) specifically targets in this respect “expenses for construction, reconstruction, expansion or improvement, borne by the seller and carried out by a company (…) when they have not have not already been taken into account for the determination of income tax and that they do not have the character of rental expenses”.

Thus, the following works are not taken into account:

– Maintenance and repair work, regardless of the size of the repairs – Work carried out by the owner himself – Expenses already used to generate a land deficit for landlords – Expenses recorded to calculate the credit for tax for the energy transition (CITE, ex-CIDD), that linked to assistance for the elderly and disabled or that granted for the prevention of technological risks (PPRT) – Works that correspond to rental repairs (painting, small repairs, etc.) or a charge recoverable from the tenant. Rental repairs are listed in the decree of August 26, 1987 (see the list here). This exclusion applies to all owners, occupants and lessors.

Namely: when the expenses relating to a rental repair or a recoverable charge on the tenant are made essential by the carrying out of construction, reconstruction, extension or improvement work, they must be included in the calculation of the capital gain.

Road, network and distribution costs

Road, network and distribution costs borne by the owner may also increase the acquisition price. And this, “whether or not they are imposed by the local authorities or their groupings”, indicates the BOFiP-Impôts.

Individuals who are having their house built, in particular as part of a subdivision operation, may be concerned.

Real estate appreciation simulators

If the calculation is not your strong point or in case of doubt, real estate capital gains simulators are available on the Internet. Among them :

– The real estate capital gains simulator of the Notaries of France– That of the notaries of Paris – Ile-de-France– The simulator of the National Housing Information Agency (Anil).

Be careful however, these simulators are intended to determine the taxation weighing on the capital gain: if you indicate that the accommodation is your main residence, they will simply tell you that the capital gain is not taxable.

*The seller accepts a delay to allow the buyer to pay part of the price later, in exchange for which the said price is revalued according to inflation or the evolution of real estate prices.