Tax on selling a flat or house in Czechia: when the sale is tax-free and when it is taxed
Two years of residence, the 10- or 5-year holding test, money spent on your own housing: when selling property is free of income tax, when it is taxed and when you must notify the tax office.
Selling a flat or house and wondering whether you will pay tax on the price? It depends on how long you have owned it, whether you live there and what you do with the money. Here are the rules under the Income Tax Act in force, for individuals who do not hold the property as business assets.
1. You have lived in the flat for at least 2 years
Income from selling a flat (a unit with no non-residential space other than a garage, cellar or storeroom) or a family house with its land is exempt if the seller lived there for at least 2 years immediately before the sale (Income Tax Act No. 586/1992 Coll., Section 4(1), letter a). For property in spouses’ joint ownership, it is enough if one spouse meets the condition.
Lived there for a shorter time? The sale is also exempt if you use the money for your own housing needs (see point 3).
2. The holding test: 10 years, 5 years for older purchases
- Any property, including a buy-to-let flat or land, can be sold tax-free if more than 10 years have passed between acquisition and sale (Income Tax Act No. 586/1992 Coll., Section 4(1), letter b).
- Did you acquire the property before 1 January 2021? Then the original 5-year test applies (Act No. 386/2020 Coll., Article IV point 2).
- For a purchased flat, the period runs from acquiring ownership, i.e. registration in the land register (Section 1105 OZ), not from signing the contract.
- For property inherited from a direct-line relative or a spouse, the time the deceased owned it also counts towards the 10 years (Income Tax Act No. 586/1992 Coll., Section 4(1), letter b).
- The period is not interrupted by a settlement of spouses’ joint property, a division of co-owners’ shares or the creation of units in the building (Income Tax Act No. 586/1992 Coll., Section 4(2)).
- Not 10 years yet? You can still get the exemption if you use the money for your own housing needs.
3. Money used for your own housing
- Housing needs mainly include buying a flat or house, building, maintaining or altering a flat or house, and repaying a loan used to finance these needs (Income Tax Act No. 586/1992 Coll., Section 4b(1)).
- You must use the money by the end of the year following the year of sale. Money you spent on housing in the year before the sale also counts (Income Tax Act No. 586/1992 Coll., Section 4b(2)).
- Notify the tax office that you received the money by the deadline for filing the tax return for the year of sale (Income Tax Act No. 586/1992 Coll., Section 4b(3)).
- If you do not meet the condition, the income is taxed as other income in the year following the year of sale (Income Tax Act No. 586/1992 Coll., Section 4b(4)).
4. When the exemption does not apply
- The property is, or in the last 10 years was, a business asset, i.e. recorded in the accounts or tax records of your business (Income Tax Act No. 586/1992 Coll., Section 4(1), letter b).
- You agreed the sale in a contract on a future purchase contract within 10 years of acquisition. The exemption does not apply even if the purchase contract itself is signed after 10 years (Income Tax Act No. 586/1992 Coll., Section 4(1), letter b).
- The same applies to the 2-year residence rule for a future sale agreed within 2 years of acquisition (Income Tax Act No. 586/1992 Coll., Section 4(1), letter a).
5. When it is taxed: on what and how much
- A sale that is not exempt is other income. The income minus expenses is taxed (Income Tax Act No. 586/1992 Coll., Section 10(4)).
- Expenses are the price at which you provably acquired the property and documented costs of technical improvements, repairs, maintenance and the sale itself (Income Tax Act No. 586/1992 Coll., Section 10(5)). The value of your own labour does not count.
- If you sell at a loss, the difference is disregarded and no tax arises on the sale (Income Tax Act No. 586/1992 Coll., Section 10(4)).
- The rate is 15%, and 23% on the part of the tax base above 36 times the average wage (Income Tax Act No. 586/1992 Coll., Section 16(1)).
6. Exempt sale over CZK 5 million: notification
If the exempt income exceeds CZK 5,000,000, notify the tax office by the deadline for filing the tax return for the year you received the money (Income Tax Act No. 586/1992 Coll., Section 38v(1)). This does not apply if the tax office can obtain the data from registers it publishes (Income Tax Act No. 586/1992 Coll., Section 38v(3)). Failing to notify carries a penalty of 0.1%, 10% after a request, and 15% of the unreported amount if you do not comply even within the extra period (Income Tax Act No. 586/1992 Coll., Section 38w(1)).
Practical tip: keep the purchase contract showing the price and acquisition date, invoices for renovation work and documents proving that you actually lived in the flat. You will need them if the tax office checks.