Income from the disposal of real estate is treated as income from property and property rights. This means that taxable income earned by individuals as owners through the use or disposal of their property and property rights is subject to taxation. Therefore, the tax on this type of income essentially represents a tax collected from a permanent source, namely from the taxpayer’s property, which arises as a result of the disposal of property for compensation.
According to legislation, the income arising from property and property rights of a taxpayer is categorized as final income along with income from capital and other receipts considered final (such as other incomes based on the return of contributions, the difference in property value and the amount of invested funds for acquisition, and other incomes from temporary or seasonal jobs in agriculture).
The legislator stipulates that income from the disposal of real estate, as final income, is not included in the annual income tax return, meaning it is taxed at the moment of realization. Taxpayers who earn this type of income cannot use a personal deduction, nor file an annual tax return, and there is no possibility of conducting a procedure for determining the annual income tax for such incomes. When determining the income from the disposal of real estate, i.e., the tax base, only revenues from the disposal of real estate and related expenses are considered, as specified in Article 56 of the Income Tax Law.
Article 56 of this Law defines income from property and property rights as the difference between income from rent, lease, renting of apartments, rooms, beds to tourists and organizing camps, income from the temporarily limited transfer of copyright, industrial property, and other rights according to special regulations, and income from the disposal of real estate and property rights, reduced by expenses incurred in that tax period.
The income that an individual realizes as a taxpayer in the form of income from any type of property and property rights is subject to taxation, with the consideration of expenses incurred in connection with these incomes when determining the tax base.
According to Article 58 of the Law, income from the disposal of real estate is classified as income from property and property rights, where disposal includes sale, exchange, and other forms of transfer. The Law does not exhaustively list all forms of ownership transfer considered taxable disposal, but it is clear that it involves disposal for compensation. A loss is also possible if expenses exceed income.
The Law states that income from property, in the case of the disposal of real estate, is calculated as the difference between the income determined by the market value of the property and its acquisition cost, adjusted for industrial price inflation, minus disposal costs. Losses from disposal can only be deducted from income earned from the disposal of real estate and property rights in that calendar year.
There are also exceptions to taxation according to the Law, for situations where there is no intention of generating income, as well as special rules for the disposal of more than three identical real estate or rights within five years, with exceptions provided by the legislator.
The legislator’s intent through the Law highlights the taxation of income earned from the disposal of real estate aimed at generating income, i.e., increasing the economic power of taxpayers.
Disposal of real estate within two years of acquisition is considered a taxable event, where the date of acquisition is taken as the date of the sales contract or, in the case of construction, the date when the property is ready for use, according to Article 68 of the Income Tax Regulations. Ambiguous Determination of the Acquisition Value of Real Estate and Expenses in Determining Income from the Disposal of Real Estate.
The ambiguous determination of the acquisition value of real estate and expenses when determining income from the disposal of real estate presents a complex issue in tax law that requires detailed analysis and understanding of both legal provisions and the practice of tax authorities and courts.
It is crucial to understand that the law prescribes that income from the disposal of real estate is determined as the difference between the market value at sale and the acquisition value, with the possibility of deducting disposal costs. However, in practice, there are doubts about how to properly determine these values, especially when it comes to the acquisition value and investment costs in the property.
It is undisputed that when determining this type of income, receipts are determined according to the market value of the property that is disposed of within two years from the date of acquisition, as regarding the determination of the amount of this income, Article 60, paragraph 1 of the Income Tax Law additionally prescribes the possibility of estimating income from property if income from property and property rights (from Article 56 of the Law) is not reported or is not reported at the market amount, including receipt from the disposal of real estate. In this case, the Tax Administration determines income according to market prices in the location where the real estate is located or the property right is used, or the property right is disposed of.
However, it is contentious that, in practice, tax authorities (both first-instance and second-instance) determine the acquisition value of real estate that is disposed of within two years from the date of its acquisition.
