How much time is there to make the reinvestment in the habitual residence? If you are in the process of selling your current home to buy a new one, pay attention to today’s article because we will show you how reinvestment in your usual home works and how it affects the Income statement.
A fundamental point is the time between the sale of your property and the purchase of the new one, this will make the difference between a normal sales process or a reinvestment. That is, between whether you will have to pay the corresponding taxes on the Income or you will be exempt from it
How does a habitual residence reinvestment work?
A reinvestment is considered a habitual residence when in a period of less than 2 years you sell your property and buy a new one. The term applies both before and after selling the home. In other words, if you sell your habitual residence, you will have two years to buy a new habitual residence. On the contrary, if you buy a habitual residence you will have two years to sell your current habitual residence and that counts as a reinvestment for the Treasury and taxes.
For this to be considered a reinvestment, it must be a habitual residence following the regulations of the Treasury, that is, you must have resided in it for a minimum of 3 years and continuously. The term may be reduced if one of the following situations occurs:
- A divorce.
- Change of employment and obtaining the first.
- Death of the taxpayer.
- Transfer for work reasons.
- Circumstances that require the necessary change of address.
On the other hand, once you have bought the new habitual residence, you have a maximum period of 12 months from the purchase or from the completion of the works on the property to move, that is, to start living in it. This implies that if you have bought a property off-plan it will also count as a reinvestment even if you still cannot reside in it.
How does it affect the Income statement?
The interesting thing about the reinvestment of your main residence is that it allows you to save the taxes to be paid in the declaration, obtaining benefits for the use of this amount in profits in another investment. When considering a reinvestment, taking into account the above parameters, you will be exempt from paying income taxes.
Types of habitual residence reinvestment: partial or total
The most common thing is that the money from the sale does not exactly match that of the purchase of the new home, which is why there are different types of reinvestment that will affect the Treasury statement in one way or another. These are those types of home reinvestment that may exist:
Partial. There is a possibility that the taxpayer did not want to allocate all the money from the sale to the reinvestment of the new home. That is to say, that part of the purchase is a reinvestment and the other through a financing model. The Treasury contemplates it and classifies it as a partial reinvestment, that is, you will only have to pay taxes on the part that you have not reinvested, since this is considered a capital gain.
Total. In this case you will not have to pay anything, since you have reinvested all the money from the sale of your habitual residence.
With financing. It may also happen that you bought the new habitual residence before selling the old residence. This implies that you have not been able to make the reinvestment and, surely, you have already contracted the mortgage you needed. Unfortunately, this will mean that you will not be able to enjoy the exemption, it would only apply to the installments of the two before or after selling the property. If you want to opt for full tax exemption, you would have to cancel the contracted mortgage.
Who is exempt from paying taxes for reinvestment of the main residence?
In addition to the reinvestment of the habitual residence, there are other cases in which the taxpayer will be exempt from paying taxes in the Income Statement:
Over 65 years. In the event that the taxpayer is over 65 years of age, he will be exempt from paying personal income tax if he sells his habitual residence.
Rehabilitation of the property. As long as it does not exceed 25% of the purchase price of the property, the costs may be added to the reinvestment money.
Rehabilitation without purchase. If you reinvest the money from the sale in the rehabilitation of a house that you already had, either by inheritance or donation.
It must be emphasized that when we talk about rehabilitation, we are talking about works on the structure of the property, which without them it would not be possible or safe to live in the house. If they are aesthetic works, you will not be able to include them to be exempt from paying personal income tax.
The importance of a good team of experts
Having the help of good experts is more than important so that the entire buying and selling process and, in turn, reinvestment do not surprise us. That is why if you are thinking about this type of investment, before doing so, consult with real estate experts who will give you details of the reinvestment operation in your habitual residence and guide you throughout this process.
If you are interested in selling your usual home, you can contact our team of real estate advisors specializing in home reinvestment. We, thanks to our experience in the real estate sector, will help you sell it and find a new home, a new habitual residence. We will be happy to help you with all the steps involved in reinvesting your usual home!
Originally posted 2023-02-08 10:30:35.