The Recovery Package in the context of tax changes
Following the Government announcement on the Recovery Package, the related amendment to the tax regulations was published. Below we summarise a selection of the most important changes in this area.
After a legislative process of approximately six months, on 26 September 2020, the Act on the Abolition of Real Estate Transfer Tax (or the repeal of the Senate’s Ordinance No. 340/2013 Coll.) became effective. In short, let us remind you of the definition of real estate, which is no longer subject to the real estate transfer tax, as well as the related amendments to the Income Taxes Act.
Tax on the transfer of real estate
The adopted Act abolishes the tax on the transfer of real estate, with retroactive effect. Thus, the tax does not apply to real estate where its transfer was registered in the cadastral register in December 2019 or later (or where the deadline for filing a tax return was on 31 March 2020 or later). The waiver of interest on late payment or the fine for late tax returns resulting from the decision of the Minister of Finance under the so-called liberalisation package apply to the same range of properties. This means that the taxpayers who acquired the properties thus defined did not have to file tax returns and pay the transfer tax until the act became effective, because the related penalties were forgiven. However, if taxpayers have nevertheless paid the transfer tax on these properties, they can submit an application for the refundable overpayment under the Tax Code, because, under the newly adopted Act, the tax liability has lapsed.
Extension of the time test for the exemption of income from the sale of investment property
In the case of income from the sale of real estate in which the personal income tax payer was not resident, in the words of the Ministry of Finance for so-called investment properties, the time test is newly extended from 5 to 10 years. This change affects, for example, rented properties or separate lands and other similar real estates. Therefore, if the taxpayer wants to exempt the income from the sale of such property from personal income tax under the new regime, then he must own the real property in question (with certain exceptions listed by law) for 10 years. However, for the exemption, it will also be possible to apply the so-called conditional exemption to the use of sales income to satisfy a housing need under the conditions laid down by the Income Taxes Act. However, the extension of the time test will only be effective for properties acquired after 1 January 2021. Thus, a time test of 5 years will continue to apply to properties acquired before that date when they are sold in the future.
Mortgage interest deduction
The Income Taxes Act, in response to the abolition of the real estate transfer tax, also introduces a reduction in the maximum possible amount of interest deducted from a building savings loan, mortgage loan, etc. Under the new wording, individuals will be able to deduct from the tax base a maximum of CZK 150,000 instead of CZK 300,000. However, the restrictions will only apply to loans used for housing needs acquired from 1 January 2021. A limit of CZK 300,000 will continue to apply to the housing needs satisfied before that date, including later refinancing.
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