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Using capital gains to buy a second home? Exemption no longer applies




The profits obtained from the sale of a property are exempt from capital gains tax if they are used to repay the permanent housing loan, and the exemption drops if they are used to make a "down payment" on the purchase of a new home.


The difference regarding the use of a temporary measure of the Mais Habitação law is contained in a response from the Tax and Customs Authority (AT) that has now been made public.


Among the various Mais Habitação measures is one that can be enjoyed until the end of this year and consists of the exclusion from IRS taxation of the profits obtained from the sale of a property (a second home or land for construction) that are used to repay the loan for the permanent housing of the owner of the property or their descendants.


The tax rule sets the conditions that the loan must be repaid within three months from the date of sale, and also limits the exclusion from capital gains taxation to the portion of the profit from the sale used to repay the loan.


In the case that gave rise to the AT's response, the taxpayer sold a property in March of last year and applied part of the value (25%) to the repayment of the loan for his son's own and permanent home.


But the case did not end there. In September of the same year, the son sold his own and permanent home to buy another one (in December), with the taxpayer who questioned the AT saying that he donated another quarter of the value of the property sold in March to help with the purchase of his son's new home.


Specifically, the taxpayer wanted to know whether, in both transactions, the value used (25% + 25% of the sale value) benefits from the transitional regime of exclusion from taxation of capital gains provided for in Mais Habitação.


According to the Tax Authority, the part of the profit from the sale intended for the purchase of the son's new house "falls outside the scope of the aforementioned tax exclusion rule", since the amount obtained from that sale "was not intended for the amortization of capital owed on a housing loan intended for the descendant's own permanent home, but rather for the payment of part of the purchase price of a property intended for the son's own permanent home".


This situation, reinforces the Tax Authority's response, "goes beyond both the letter and the spirit of the law".


The portion used to repay the loan taken out by your son to purchase his own permanent home "may benefit from the application of the tax exclusion rule" provided for in Mais Habitação, according to the AT's response, recalling that, for this to happen, it is also necessary for this loan to already exist at the time of the sale of the property [in March]".


This exemption applied to sales made since January 1, 2022, requiring repayment within three months after Mais Habitação came into force.


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Source: Idealista

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