You can exempt the sales income if you meet at least one of the following conditions:
1. A 2-year residence test for residential property
If you decide to sell a property in which you lived for more than 2 years immediately before the sale, the sale is tax-exempt.
For this purpose, the law defines property as a family house and related land, or a unit containing no non-residential space other than a garage, cellar or storeroom, and related land.
For these purposes, residence means the place where the seller actually lived. You do not need to have your registered permanent address there too. On the other hand, without a permanent-address registration, the tax office may want evidence. This could be your own declaration, neighbours' declarations, utilities in your name and so on … 🙂 It depends on the particular office.
2. A 5/10-year holding-period test
If you acquired the property by 31.12.2020, income from its sale is tax-exempt 5 years after acquisition. The relevant date is the date on which registration in the Land Registry took legal effect. If you acquired the property after 1.1.2021, sales income will be exempt from income tax only after 10 years of ownership.
3. Meeting your own housing needs within 1 year
If you did not live in the house or flat for more than 2 years immediately before selling and did not meet the holding-period test either, there is another exemption option! 🙂 It applies if you decide to invest the proceeds in your next home. You may have invested in the new home in the year before the sale, in the year of sale or no later than one year after the sale.
But here is a big WARNING! You must notify the tax office in time that you want to exempt the sale on the basis of reinvestment in your own housing! More in a separate article.
Tax rates
The income tax principle is always the same, whatever your source of income.
15% tax is paid by an individual on income (employment) or profit (business, rental, property sales, securities sales, cryptocurrency sales) up to CZK 1,582,812 (36 times the gross wage for 2024)
23% tax is paid by an individual on income (employment) or profit (business, rental, property sales, securities sales, cryptocurrency sales) above CZK 1,582,812 (36 times the gross wage for 2024)
A little practical example
| Expenses | |
| Flat purchase price in 2021 |
CZK 3,500,000.00 |
| Estate agent's commission on purchase in 2021 |
CZK 100,000.00 |
| New kitchen units for which you have receipts from 2021 |
CZK 400,000.00 |
| Income | |
| Flat sale price in 2024 |
CZK 5,000,000.00 |
| Expenses connected with buying a new home | |
| Purchase of a new flat in 2024 |
CZK 4,000,000.00 |
OPTION a) If you lived in the flat throughout, the sale is exempt. Condition 1), the 2-year residence test, is met.
OPTION b) If, for example, your parents lived in the flat, you do not meet the residence condition. But what if you use the proceeds to buy a flat for yourself? Exemption should then be possible under condition 3), reinvesting in your own housing. But will everything be exempt? The sale was for CZK 5 million and the new flat cost CZK 4 million. Only ⅘, or CZK 4 million, would be exempt. The remaining CZK 1 million would be taxed as follows:
| Income |
of which 1/5 = the non-exempt portion |
| Flat sale price … CZK 5,000,000.00 |
CZK 1,000,000.00 |
| Expenses |
of which 1/5 = the non-exempt portion |
| Flat purchase price … CZK 3,500,000.00 |
CZK 700,000.00 |
| Estate agent's commission … CZK 100,000.00 |
CZK 20,000.00 |
| Kitchen units … CZK 400,000.00 |
CZK 80,000.00 |
| Difference between income and expenses |
1,000,000.00 – 800,000.00 = CZK 200,000.00 |
| Tax at 15% |
200,000.00 * 15% = CZK 30,000.00 |
OPTION c) What if you let the flat before selling it and then use the money for your own housing? The solution is the same as in example 2). However, instead of claiming the full purchase price as an expense, you claim the purchase price reduced by depreciation of the property claimed during the rental period.
If property sales still have you scratching your head and you are unsure whether you must tax or report your income, do get in touch and together we will certainly find a solution. 🙂