Taxes when selling property in Italy

If you are planning to sell property in Italy, juggling the bureaucracy and taxes involved can become quite complex. For this reason, we've put together this handy guide to help you save time and quickly understand how real estate taxation in Italy works and when you can be exempt from payment, adding to the total cost of selling property in Italy. This is everything you need to know about taxes when selling property in Italy.

How to pay taxes when selling a house in Italy

Deciding to sell a property in Italy means that the seller has to pay certain taxes, which are regulated differently depending on whether it is a main residence or second home and on the number of years since the purchase. Payment of taxes on the sale of the house is not compulsory in some cases in Italy, as we will see later.

Generally, there are two options from which the seller can choose in order to correctly pay the taxes for the sale of the house, namely:

• the ordinary taxation regime
• substitute tax.

Ordinary taxation allows the seller to calculate the taxes for the sale of the property through the common IRPEF income tax rates, divided into brackets for individuals. This means that the capital gain generated by the sale of the property, i.e. the gain obtained by the owner, is taxed directly in the tax return by entering the capital gain under 'miscellaneous income'. The tax brackets, with the corresponding rates, are identified as follows

• for profit less than or equal to €15,000, the rate is set at 23%;
• for profit between €15,001 and €28,000, the rate is 27%;
• for profit between €28,001 and €55,000, the rate is 38%;
• for profit between €55,001 and €75,000, the rate is 41%;
• for profit over €75,001, the rate is 43%.

Substitute tax, on the other hand, provides for separate taxation on the sale of the property at a rate of 26%. In order to apply for the substitute tax, a notary's deed is required, for which additional taxes may be levied on the Inland Revenue Office in the course of processing the paperwork for the sale of the house.

When do you have to pay taxes on the sale of your house in Italy?

When it comes to taxes on the sale of a house, it is necessary to make an important distinction between:

• the sale of the house before 5 years have passed since the purchase
• the sale of the house after 5 years of purchase.

In the first case, paying taxes on the sale of the property is mandatory. The reason why payment of taxes is required on the sale of a property in this case concerns the risk of excess profit from the capital gain. If the owner intends to profit on the sale, tax is levied on the gain.

In the second case, if the owner who intends to sell has owned the property for more than five years, they are exempt from paying tax. In addition to this eventuality, there are further circumstances in which it is not necessary to pay tax on the sale of the house, such as:

• when the owner has acquired the property by inheritance
• when the owner has acquired the property by gift
• when the owner has taken up residence in the property he/she wishes to sell for more than half of the time from the date of purchase.

Therefore, the obligation to pay taxes on the sale of the property is determined on the basis of several criteria, such as the time elapsed since the date of purchase, the method of purchase of the property and the person who has lived in the property.

Taxes payable on the sale of a main residence

Taxes on the sale of the property are distinguished according to whether it is a main residence or a second or holiday home. The taxes on the sale of a main residence depend on when the house is sold. Specifically:

• if the sale takes place after 5 years have elapsed since the purchase, the owner is exempt from paying sales tax on the property;
• if the sale takes place before 5 years have elapsed since the purchase, the property sales tax on the capital gain is mandatory, unless the property is one in which the owner has resided for most of the years or if the owner has received the house as a gift or through inheritance.

Furthermore, if at the time of purchase the owner has benefited from first home allowances, the capital gain generated by the sale before 5 years have elapsed results in the loss of the benefit through the payment of first home sales tax.

Taxes on the sale of real estate between private individuals, i.e. the costs of registration and notary services, entail the payment of a registration tax of 2 per cent of the purchase price or cadastral value, as well as a mortgage tax of €50 and cadastral tax of the same value. These costs can be divided between the old and new owner of the property.

Taxes due on second homes in Italy

According to a mechanism similar to that for main residences, the sale of a second home after 5 years is not subject to the obligation to pay taxes and, conversely, the sale of a second home before 5 years entails the payment of taxes on the sale of the home.

If the sale of the second home before 5 years have elapsed since the purchase results in a capital gain, the amount of second home sales tax always depends on the taxation regime chosen, ordinary taxation or substitute tax.

Taxes on the sale of real estate between private individuals, in the case of the purchase of second homes exempt from tax concessions, involves the payment of a registration tax of 9% of the purchase price or cadastral value as well as the mortgage and cadastral tax of a total value of 100 euro. Again, the costs can be divided between the old and new owner of the property.

How do sales taxes on inherited property work in Italy?

The rules are significantly different when it comes to the calculation of taxes for those selling an inherited house in Italy. So the first thing to do is to proceed with the declaration of inheritance. In contrast to the cases analysed above, the sale of an inherited property before 5 years does not require payment of sales tax.

In the opposite case, i.e. after the 5 years, it is necessary to pay sales tax on the inherited house. However, the tax base can be calculated using the price-value method. In other words, to find out how much it costs to sell an inherited house, it is necessary to distinguish between the timing of the sale and the declaration of inheritance.