Basic taxation when selling a home: IRPF and exemptions

Of all the numbers in a sale, the tax one moves the most money and is the one least calculated in time. The gain from selling your flat is taxed under IRPF (Spanish income tax), and there are exemptions that can save you thousands of euros… if you plan them before signing, not after.

Important notice: this is a general, educational explanation. Taxation depends on your personal situation and the rules change. For your specific case, always consult a tax adviser.

The capital gain: the basic calculation

The tax authority considers that you've made a capital gain on the difference between:

• Transfer value: what you're paid, minus the sale costs (agency commission, for example).
• Acquisition value: what it cost you (purchase price + purchase costs: notary, registry, the taxes of the time) plus the renovations and improvements you can justify with invoices.

That difference is taxed in the savings base of the IRPF, in bands: the bigger the gain, the higher the rate. The exact rates are set by each year's law; your adviser will tell you the current ones.

Note the key detail: renovations with invoices reduce the gain. That bathroom renovation whose invoice you threw away is costing you money twice.

Exemption for reinvestment in the main residence

This is the most powerful exemption and the most conditional. If you sell your main residence and reinvest the amount obtained in another main residence within the legal deadline (the two years before or after the sale), the gain is exempt.

Conditions that usually fail:

• It has to be your genuine main residence: having lived there for a minimum period on a continuous basis. The flat you rent out or the second home doesn't count.
• The reinvestment has to be in another main residence, not just any property.
• If you reinvest only part of it, the exemption is proportional.

If you're thinking of selling to buy something else, plan the sequence of dates with your adviser before signing anything. One month out of sync can cost you the exemption.

Over-65s: exemption without reinvesting

Those aged 65 or over who sell their main residence are exempt from tax on the gain, without needing to reinvest the amount. It's one of the least known and most valuable exemptions.

Note: it applies to the main residence. For other properties (second homes, commercial premises), the over-65s have a different route: the exemption if the amount is used to take out a life annuity within the deadline and conditions. Again: adviser.

Other cases with special treatment

• Dación en pago (handing over the property to the lender to settle the mortgage) of the main residence: it has its own exemption under certain conditions.
• People in a situation of severe or major dependency who sell their main residence: also covered.
• Inheritances: whoever inherits doesn't pay tax on the deceased's gain at that point, but when they sell what they inherited, their acquisition value will be that of the inheritance (the one declared for succession). Selling quickly after inheriting usually generates little gain; waiting years, a lot.

Costly and frequent mistakes

1. Calculating it after signing the arras. By then the price is already closed and there's no room to plan. (*Arras* are the deposit agreement that secures the sale.)
2. Throwing away renovation invoices. Every lost invoice is gain taxed in excess.
3. Believing that "as it's my home, I don't pay". The main residence isn't exempt by default: it is if you reinvest or if you're 65+.
4. Mixing up the plusvalía municipal with the IRPF. They're two different taxes (the plusvalía, here). You pay both. (*Plusvalía municipal* is the municipal tax on the increase in urban land value.)
5. Not declaring the sale. The tax authority cross-references notary and registry data. The sale is declared in the tax return for the year the *escritura* (the notarial deed) is signed.

When to do it

Before setting the price. The tax estimate is part of your sale's net number: price − mortgage − costs − taxes = what you keep. If you do it at the end, you get the surprise when you can no longer do anything about it.

Keep from today: purchase escritura, purchase and renovation invoices, proof of sale expenses. That folder is money.

Selling in Cullera or La Safor? At Llevant Patrimonial we help you get all the numbers right — including a first indicative tax estimate — before signing. Opening soon. And for the definitive calculation, we'll recommend a tax adviser.