It came true, finally. The real estate acquisition tax is cancelled, the last dot (or signature) behind this painful taxation was made by the President of the Czech Republic on Friday. The acquisition tax of 4% of the purchase price made a real hole in buyers‘ wallets, given the today’s real estate prices: the average property price being 3 million CZK, they had to pay an additional 120 thousand CZK to the state.
However, some more information needs to be added to the approved tax cancellation because several other topics were included in this subject. Now I´ll summarize for you the most important things you should be aware of as owners or future buyers of real estate to help you know what´s what.
If you bought the property recently, you definitely wonder whether you are a member of the group of lucky people who don´t have to pay the acquisition tax. The decisive date from which you´ll derive the obligation is the registration of the ownership right. If it was made from 1.12.2019 onwards, then you no longer have to pay the acquisition tax (and if you´ve already paid, you can apply for a refund). If it was done before this date, then the obligation still applies (and I hope that you´ve already paid as the penalties are rather high). The date of registration of ownership can be found at the relevant Certificate of Title in section E called Acquisition titles and other documents of registration, see below:
Purchase Agreement from the day of 27.11. 2019. Legal effects of registration as of 04.12.2019 13:59:28. Registration performed on the day of 30.12. 2019.
The original bill included the complete cancellation of the possibility to deduct mortgage interest from the tax base, however, this deduction had meant a pleasant bonus for many families in their budgets. Fortunately, this complete cancellation didn´t happen in the end. As per the final proposal, it´s possible to claim interest up to 150 thousand per year (the limit was 300 thousand per year until now), which at current rates and an average maturity of 25 years corresponds to a mortgage of approximately 6 million CZK.
If your mortgage exceeded 6 million CZK or your mortgage interest rate was significantly higher than it´s common today (approx. 2.5%) or if the maturity was shorter than 25 years, then this new capping of deductions to 150 thousand annually may have a negative impact on you and you´ll be no longer able to claim all the interest paid.
Furthermore, it needs to be specified that the limit for mortgage deductions applies only to residential property, not to property for rent where it is possible to apply the deduction without restriction (more about rental taxes in this article).
The last change is the extension of the exemption period from 5 years to 10 years. This change will only apply to real estate acquired after 1.1.2021, that is the original exemption period of 5 years will apply for all previous purchases and all purchases this year. I´d also like to note that other exemption periods remain in force, see in this article.