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Determining taxable capital gains
Calculation Basis
The capital gain is equal to the difference between the sale price (minus the transfer costs and the amount of VAT paid) and the purchase price (mainly the registration costs paid during the purchase or 7.5% of the purchase price) or the declared value when the property was received through a donation or inheritance (plus actual costs and transfer rights, free of charge, if these were borne by the donee or the 'heir).
Works expenses
The purchase price may be increased due to construction, reconstruction, extension or improvement expenses, as soon as these have been borne by the seller and carried out by a company, who shall be subject to presenting the supporting documents (invoices concerning VAT Note: the materials and works carried out by the owner himself are no longer deductible). Moreover, these must not have already been taken into account, in order to determine the income tax (mainly deduction for property tax revenue) and these must not be rental costs (CGI, art. 150 VB II, 4°).
The works taken into account to determine the real estate capital gains, are defined in the same way as those taken into account for determining taxable property income.
Solely the incurred costs since the completion of the building or its acquisition, if it is later can be taken into account, in addition to the purchase price.
In all cases, maintenance, and repair expenses, including major repairs, are not included among the expenses that can be taken into account, in order to calculate the capital gain. These concern works which are intended to maintain or restore a building, in proper condition and allow normal use.
Expenses in addition to the purchase price must be justified (CGI, art. 150 VB II). However, the documents justifying works are only provided at the request of the administration (CGI, ann. II, art. 74 SI).
Alternatively, the seller may increase the purchase value by 15%, if he has owned it for more than 5 years, on a flat-rate basis, without having to establish the reality of works, the amount of works genuinely carried out or his inability to provide supporting documents (CGI, art. 150 VB II, 4°). There is no need to check, if the work expenses have already been taken into account for the income tax base. The 15% flat rate is a simple option for taxpayers, who have owned their property for more than five years. It does not add up to the costs, which are borne by the owner.
If many works have been carried out in the second home, the notary will advise to keep all the invoices because the purchase price may be subject to an increase in the amount of the actual expenditure of the works, for which the invoices have been retained. Otherwise, only the standard increase of 15% shall be applied without proof if the property has been held for at least five years.
Reduction for detention period
The rate and reduction rate for the detention duration are different, in order to determine the taxable base for income tax and social security contributions.
| Holding period | Applicable abatement rates each year detention Tax base on income | Applicable abatement rates each year detention Base for social contributions |
| Under 6 years | 0 % | 0 % |
| From the 6th to the 21st year | 6 % | 1.65 % |
| 22nd pass year | 4 % | 1.60 % |
| Beyond the 22nd year | Exemption | 9 % |
| Beyond 30th year | Exemption | Exemption |
Thus, the real-estate capital gain is exempted:
- after 22 years of income tax detention
- after 30 years of detention for social security contributions.
The years of detention are counted from the anniversary of the property purchase (date of purchase, date of donation or date of death)
Exceptional reduction under certain conditions due to transfer of property which are built or building lots
In accordance with the provisions of II article 28 of the law n °2017-1775 dated December 28, 2017 of amending finance for 2017, an exceptional reduction applies, under conditions and temporarily, in order to determine the net taxable capital gain, both for income tax and social security contributions, resulting from the sale of building land or built real estate, or related rights.
Therefore, the capital gains resulting from the sale of building land or built buildings intended to be demolished, towards a reconstruction of one or more collective housing buildings, located in geographic areas characterized by a peculiar imbalance between the demand and supply for housing, are determined after applying an exceptional reduction of 70% or 85%, on the dual condition that the sale:
- is either preceded by a unilateral or synallagmatic sale agreement and has acquired a firm date from January 1, 2018 and no later than December 31, 2020.
- be carried out at the latest on December 31 of the second year following the year in which the unilateral or synallagmatic sale agreement acquired a firm date. Theoretically, the exceptional reduction may therefore apply to transfers, carried out until December 31, 2022
Tax rate on capital gains:
The capital gain is taxed under income tax at the current flat rate of 19% (with a linear reduction of 6% from the 6th year) and under social security contributions at the current rate of 17.2 % (with a progressive reduction 6th year onward).
The amount of the tax shall be deducted by the notary from the sale price, while signing the authentic act and paid by the latter to the tax authorities.
An additional tax (from 2 to 6% depending on the amount of the capital gain after applying the reduction) applies to capital gains on property, other than on building land of an amount higher than 50,000€ . The capital gains resulting from transfers carried out since January 1, 2013 are concerned.
One can collect a municipal tax during a sale of a land, which is now approved as a building land (CGI Art. 1529) and/or a national tax (CGI Art. 1605 ch).
The capital gain regime varies depending on the sale price, the nature of the property, and the ownership duration. Given the concept of taxation, there are cases of limited exemptions.
Tax-free real-estate capital gains
Transfers exempt from tax on real estate gains are listed under II et III de l’article 150 U CGI.
The following are exempted:
- The sale of the main residence and its immediate and necessary outbuildings, which are sold simultaneously or almost simultaneously.
- The sale of an elevation right, under the conditions of article 150 U II-9 CGI;
- The sale of housing located in France by non-resident taxpayers under certain conditions (CGI art. 150 U II-2 à 9 et III);
- Capital gains made on property sales for a price less than or equal to 15,000 euros, for a single person, 30,000 euros for a couple;
- Those made during a property sale, held for more than 30 years.
- The sale of a property in the event of its dispossession, under conditions of re-use (CGI art.150 U II-4)
- Sale by pensioners or the disabled with modest backgrounds (CGI Art. 150 U III)
Taxpayers who do not own their main residence, can benefit from an exemption from capital gains made on the first home sale, under certain conditions:
- The transferor was not the owner of his main residence, directly or through an intermediary, during the four years preceding the transfer (CGI, art. 150 U II, 1°bis, al. 1st);
- The transferor must proceed with the re-use of the transfer price "within twenty-four months from the transfer, with the aim of an acquisition or construction of the latter, upon its completion or acquisition, if it is subsequent to the main residence ”(CGI, art. 150 U II, 1° bis, al. 2 - in limine).
In the event of a breach of any of these conditions, the exemption shall be questioned, with respect to the year of the breach (CGI, art. 150 U II, 1° bis, al. 2 - in fine). You can obtain more information through the Official Bulletin of Public Finance Tax.
