In this brief article, we would like to summarise the essential aspects relating to personal income tax and the sale of immovable property.

The sale of immovable property is subject to income tax as so-called other income, which is set out in Section 10 of the Income Tax Act. However, it will not be necessary to pay income tax on every sale of immovable property, as the Income Tax Act exempts a large proportion of transfers of immovable property from tax.

The following transfers of immovable property are exempt from personal income tax:

1. Income from the sale of a family house and associated land or a unit which does not include non-residential space and associated land, provided that the seller had his or her residence therein for at least 2 years immediately before the sale.
2. Income from the sale of a family house, a unit which does not include non-residential space, or a co-ownership share and associated land, where the seller had his or her residence therein immediately before the sale for a period shorter than 2 years, shall be exempt if the seller uses the proceeds obtained from the sale to satisfy his or her housing needs (most commonly for the purchase of another family house or unit). The above exemptions shall not apply in certain cases, namely where the immovable property formed part of the seller’s business assets and also in cases of future sale of immovable property where the conclusion of a contract for a future purchase contract occurred within a period of up to 2 years from the acquisition of ownership rights to the immovable property. 3. Furthermore, income from the sale of immovable things is exempt if the period between the acquisition of ownership rights to such immovable things and their sale exceeds 5 years. In the case of acquisition of immovable property by inheritance from a relative in the direct line (e.g. parents, grandparents and children) or from a spouse, the five-year period also includes the period during which these relatives owned the immovable property. In the case of the sale of land acquired by exchange from the land office, the five-year period also includes the period during which the seller owned the land which was the subject of the exchange within the framework of land consolidation.

However, this exemption does not apply to the following situations:

• income from the sale of immovable things which are or were included in business assets during the period of 5 years before the sale,
• future sale of immovable things carried out within 5 years of the acquisition of ownership rights to such immovable things, even if the purchase contract is concluded only after 5 years from such acquisition,
• future sale of immovable things carried out within 5 years of their removal from business assets, even if the purchase contract is concluded only after 5 years from such removal,
• and sale of building rights where no building complying with the building rights has been erected.

In conclusion, it must be noted that if income from the sale of immovable property is not exempt under the above rules, this income shall be reduced for the tax base by expenses demonstrably incurred in achieving it. In the case of immovable property, this expense is therefore the price for which the seller acquired the immovable property, and if he or she acquired it free of charge, the expense shall be the price determined according to the special Act on Property Valuation. A seller who sells his or her immovable property for less than he or she acquired it will therefore not have to pay income tax on the sale of the immovable property.

Mgr. Ondřej Bahník

The article was originally published in the Real Estate Magazine of Česká Spořitelna.

This text was translated from Czech to English using an AI translator.