Effective as of the 2021 assessment period, an amendment to the Income Tax Act has changed the conditions under which the revenues from selling a residential house or apartment unit are exempt from income tax (whereas it is always a basic prerequisite that the revenues be used to finance the taxpayer’s personal housing needs).

More specifically, the change affects Sec. 4 (1) (a) of the Income Tax Act. Provided that the seller of a family home (house and land plot, or apartment – not including any non-residential premises other than a garage, basement unit, or storage unit – and land plot) had their place of residence in the sold property for fewer than two years immediately preceding the sale, it may be possible to claim income tax exemption on the sale if two requirements are fulfilled:
1. The proceeds are used to satisfy the taxpayer’s own housing needs, and
2. The finance office has been notified of the fact that the taxpayer gained the said proceeds, whereas this notice must be filed within the deadline for filing the tax return for the assessment period in which the means were attained. For the year 2021, this deadline for filing the income tax return is 1 April 2022, or 2 May 2022 if the tax return is being filed electronically, or 1 July 2022 if the tax return is being filed by a tax advisor.

If the taxpayer fails to notify the finance office of the attained funds by the above-described date for filing the tax return, they forfeit the option to claim the tax exemption.

The basic condition for tax exemption of the proceeds – namely, that they be used to satisfy the taxpayer’s own housing needs – is deemed fulfilled if:
a. the funds were used to satisfy the taxpayer’s own housing needs by the end of the assessment period which immediately follows the assessment period in which the taxpayer attained the funds, or
b. an amount equal to the attained funds is being used to satisfy own housing needs even before the funds were attained, but no sooner than in the assessment period which immediately precedes the assessment period in which the taxpayer attains the funds.

The obligation to notify the fiscal authorities of the attained funds as a prerequisite for tax exemption applies also to other types of tax exemptions which are tied to the satisfaction of own housing needs, such as the tax exemption of proceeds for the sale of a property which was held for less than 10 years between purchase and resale (Sec. 4 (1) (b) of the Income Tax Act), or the tax exemption of the compensation paid for the break of a lease (Sec. 4 (1) (v) of the Income Tax Act).
Notice may be given to the finance office for this purpose by way of an informal letter.

Source:
Income Tax Act (Act No. 586/1992 Coll.)
https://www.financnisprava.cz/cs/financni-sprava/media-a-verejnost

AUTHOR

• 

  Lenka Zachardová

  Tax Advisor
  Senior Tax Consultant

  T +420 222 929 301
  lenka.zachardova@bnt.eu
  Czech Republic

  Language 

  Czech, English, German