Taxes When Selling Real Estate – A Complete Guide
Selling a property can be an exciting but also complicated process, especially when it comes to the taxes that are due. Understanding the legal requirements, as well as the ways to optimise your costs, can save you both money and headaches.
In this article, we’ll look at everything you need to know about taxes when selling real estate, providing detailed information, examples and practical tips.
Is tax due when selling a property?
In Bulgaria, not every property sale is subject to tax. This depends on various factors, such as how long you have owned the property, the way it was acquired and the number of properties sold within the year. The legislation defines specific cases in which tax is not due, as well as situations where paying tax is mandatory.
When is no tax due on the sale of a property?
There are several main situations in which the sale of real estate is not taxed:
- Sale of a residential property owned for more than 3 years – if the seller has owned the dwelling for more than 3 years, its sale is not taxable.
- Sale of up to two properties (residential or agricultural) owned for more than 5 years – when the seller owns two or fewer properties for more than 5 years, no tax is due on their sale.
- Sale of an inherited property – if the property was received by inheritance or bequest, its sale is not subject to taxation.
- Sale of agricultural land or forest properties owned for more than 5 years – regardless of the number of such properties sold within the tax year, they are not taxed.
When is tax due on the sale of a property?
Tax is due in the following cases:
- If the property is sold before the expiry of a 3-year period from its acquisition.
- If more than two properties are sold within a calendar year.
- If the property was acquired by donation and the seller does not fall into a category of persons exempt from tax.
How is the tax calculated?
To determine the taxable base from the realised profit, 10% standard (statutorily recognised) expenses are deducted. After this deduction, the tax due is 10% on the remaining amount.
Example:
If you purchased a property for 100,000 EUR and sell it for 120,000 EUR, the realised profit is 20,000 EUR. After deducting the standard expenses (10% of 20,000 = 2,000 EUR), the remaining amount is 18,000 EUR, on which a 10% tax is due, i.e. 1,800 EUR.
What happens if the property is sold at the same or a lower price?
If the property is sold at the same or a lower price than its purchase price, no profit is realised and therefore no tax is due. This rule is particularly important in situations involving market fluctuations.
Is a tax return required when selling a property?
If tax is due on the sale of a property, an annual tax return under Article 50 of the Personal Income Tax Act must be submitted. It must be filed by 31 March of the year following the year of the transaction.
What discounts can be used?
- 5% discount – if the tax return is submitted online with a personal identification code (PIC) or qualified electronic signature (QES) by 31 March and if all liabilities to the National Revenue Agency (NRA) are paid within the deadline.
Ways to submit the tax return:
- Online – via PIC issued by the NRA or with an electronic signature.
- By post – with a return receipt.
- In person at an NRA office – according to your permanent address.
Important tips
- Consult a specialist – although the information in this article is up to date, laws change often, so always check the latest updates or consult a tax expert.
- Keep track of deadlines – late payments can lead to penalties and interest.
- Keep all documents – contracts, payment orders and other related documents can save you trouble in case of an audit by the NRA.
Understanding tax treatment when selling real estate is key to proper planning of your transactions. Inform yourself in advance and plan wisely to avoid unpleasant financial surprises.