Selling a property can lead to significant gains, but also substantial taxes on the capital gain realized. However, there are many exemptions that can reduce or even eliminate this tax. Let’s take a closer look.
What is a real estate capital gain?
The real estate capital gain is the profit made when selling a property. It is simply calculated by subtracting the purchase price of the property from the selling price, while taking into account acquisition costs (notary, taxes, etc.) and the cost of any work carried out, under certain conditions.
This gain is subject to two types of taxes: income tax at a rate of 19%, and social contributions at 17.2%, unless exemptions apply.
Main capital gains exemptions
Certain situations allow you to avoid paying tax on the real estate capital gain. Here are the main exemptions:
Primary residence
Selling your primary residence allows you to benefit from a full exemption on the capital gain realized. Note that, to qualify, it must be your actual primary residence, the one you occupy for the majority of the year.
If you have moved out, you can still be exempted provided the sale takes place within one year of your departure. Outbuildings (garage, cellar, etc.) are also included in this exemption if they are sold at the same time.
First sale
If you sell a property for the first time that is not your primary residence, you may also benefit from an exemption under certain conditions. For example, the capital gain on a secondary residence will not be taxed if:
- You have not owned your primary residence, directly or through an intermediary, in the four years preceding the sale.
- You reinvest the sale amount in the purchase or construction of your primary residence within two years of the sale.
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Elderly or disabled persons
Elderly or disabled persons with modest incomes may benefit from an exemption on real estate capital gains, regardless of the type of property sold.
To qualify, their reference tax income for the second-to-last year before the sale must not exceed the threshold set by Article 1417 of the General Tax Code, and they must not be subject to the Wealth Solidarity Tax (ISF).
Good to know: if these individuals reside in a medical retirement home or care facility, they can still benefit from this exemption, provided the sale occurs within two years of their admission and the property has remained unoccupied.
Length of ownership: The longer you keep it, the less you pay!
The length of time you hold a property can significantly reduce or even eliminate the tax on the capital gain. Here’s how it works:
Income tax reduction
If you have owned a property for more than 5 years, you benefit from a progressive reduction on the taxable capital gain for income tax. This reduction is 6% per year from the 6th to the 21st year, and 4% for the 22nd year. Thus, after 22 years of ownership, you are fully exempt from income tax.
Social contributions reduction
For social contributions, the reduction is slightly slower. It starts at 1.65% per year from the 6th to the 21st year, rises to 1.60% in the 22nd year, and then increases to 9% per year thereafter. It takes 30 years of ownership to obtain a full exemption from social contributions.
Specific exemptions
Certain specific situations allow for a full or partial exemption on real estate capital gains. While these are less common, they can save you significant amounts:
Sale of a property for less than €15,000
If the sale price of a property is less than €15,000, the capital gain is fully exempt. This threshold applies per property and per sale. Even in co-ownership, each co-seller can benefit from this exemption as long as their share remains below this limit.
Expropriation and right of elevation
In the case of an expropriation for public utility, a full exemption is granted if 90% of the compensation is reinvested in another property. The sale of a right of elevation can also be exempted, provided the buyer commits to building housing within 4 years.
Sale to social housing organizations
Selling to a social housing organization allows for a full exemption. This also applies to individuals who commit to building social housing within 4 years of acquiring the property.
Sale of a primary residence by non-residents
Non-residents may be exempt from capital gains on the sale of their primary residence in France if the sale occurs within one year of their departure and the property has not been rented or lent. This exemption only applies to non-residents living in an EU country or a state that has signed specific tax agreements with France.
Sales in high-demand areas
In certain areas with high housing demand, known as high-demand zones (zones A and A bis), an exceptional 70% reduction may apply. This reduction applies to building plots and developed properties, provided the buyer commits to demolishing existing structures to build new housing.
Need to assess the value of your property before selling? Contact us for a real estate valuation.
