The income tax exemption period for the sale of real estate is changing in the Czech Republic. You only have a month and a half to make use of the short time limit

There is one fundamental change related to the cancellation of the acquisition tax. The time limit for exemption from income tax on the sale of real estate has changed. Now this period is established at 5 years and from next year it is extended to 10 years. The change only applies to real estate acquired in 2021 and onwards. If you already own a property, you still have the time limit of 5 years. If you want to obrain a property, whether by buying it or having the opportunity to get it without financial consideration, for example as a gift, if you manage to carry it out by the end of this year, you´ll become a member of the privileged group of owners with the 5-year time limit. Therefore it makes sense to get going now. The decisive day will be the submission of a motion for the registration of the ownership right to which the legal effects of the acquisition of real estate are attached. There is no need for the cadastre to register you as the owner this year. All you have to do is to arrive at the cadastre between Christmas and New Year with your contract.

Why is this exemption period important? Because, as the only one of all other options for exemption, it´s not associated with other additional conditions (more about the exemption options in this article), you only need to own the property for a certain time. I´ll add that the Czech Republic is very tax-favourable in this respect, in other countries it is common to impose high taxes on the income from the sale of real estate. We´ll now show how this income tax works on a practical example of the sale of land near Prague:

Mr. Novák bought a plot of land near Prague three years ago for the construction of a house. The area of the plot of land is 1,000 m2 and he paid 2,500,000 CZK for it. During the ownership period, Mr. Novák made an electricity supply connector for 50,000 CZK, a water supply connector for 25,000 CZK and fenced off the land for 25,000 CZK.

He decided to sell the land this year, he needs money for his business as it isn´t doing well, unlike in the past. He commissioned a broker to sell the land. They agreed on a fee of 3% + VAT from the sale price and set the sale price at CZK 4,500,000. They found a buyer for the quoted price in 2 months.

None of the exemption conditions apply to this sale (more about the possibilities of exemption in this article), therefore Mr. Novák will have to pay tax. It´s calculated as follows:

The selling price of the property minus the cost of acquisition minus the cost of appreciation minus the cost of the transfer. The remaining amount corresponding to the profit is taxed at 15%.

In our case it is as follows:

  • Sales price: 4,500,000 CZK
  • Acquisition costs: purchase price 2,500,000 CZK and acquisition tax paid 100,000 CZK.
  • Valuation costs: electricity supply connector for 50,000 CZK, water supply connector for 25,000 CZK and fence for 25,000 CZK.
  • Costs associated with the transfer: a fee to the real estate broker in the amount of 163,350 CZK. The fee included all transfer costs (contract, custody, stamps in the cadastre, etc.), that is the seller paid nothing extra.

Now the calculation itself:

4,500,000 – 2,500,000 – 100,000 – 50,000 – 25,000 – 25,000 – 163,350 = profit 1,636,650 CZK

Mr. Novák will tax this profit by 15%, that is he´ll pay tax to the state amounting to 245,500 CZK on the sale of the land.

With real estate prices rising in the long-term (more on the topic of prices in this article), the tax can be rather uncomfortably high in cases that aren´t tax exempt.