The repayment of a loan for real estate being sold and the ‘own housing purposes’ exemption
The sale of real estate within 5 years from the end of the calendar year in which it was purchased is subject to 19% income tax. Nevertheless, a tax exemption (the so-called ‘housing tax relief’) can be claimed if the proceeds are used for the seller’s own residential purposes within 3 years from the end of the year when the sale was effected.
Pursuant to the PIT Act, expenditures for one's own housing purposes include, inter alia, expenditures for the repayment of a loan with interest, including the so-called refinancing and consolidation loans, taken out in order to finance one's own housing needs. However, diverse opinions have occurred, both in the practice of the tax authorities and in courts’ case law, as to whether expenditures for credit repayment incurred for the sold real estate can be deemed expenditures for one’s own residential purposes.
Since 1 January 2022, disputes in this regard have been resolved by the changes introduced by the so-called ‘Polish Deal’. The recently added Art. 21 (30a) of the PIT Act expressly states that repayment of a loan relating to the real property being sold may be treated as incurring expenses for one’s own residential purposes, irrespective of whether the expenses financed by the loan have already been included in tax deductible costs.
Doubts have arisen, though, as to how to construe the provisions in relation to the legal situation prior to 2022. On December 21, 2021 the Ministry of Finance provided an answer in this regard to a parliamentary interpellation no. 28692 (case number DD2.054.48.2021) indicating that the changes introduced by the Polish Deal should be treated as a clarification of the previously applicable provisions of the PIT Act.
On April 1, 2022 in turn, the Minister of Finance issued a public ruling no. DD2.8202.5.2020 which confirmed that also in the legal situation from before December 31, 2021 the repayment of a loan taken out for real estate being sold is covered by the notion of expenditure for own residential purposes and, consequently, meets the conditions for exemption. This position, in the opinion of the Minister of Finance, is consistent with the intention of the legislator.
The Minister also pointed out that there are no legal requirements that, in order to qualify as expenditure for one’s own residential purposes, the loan repayment must be made with respect to a loan taken out for a new property.
Karol Śmiałko, Tax Consultant, ATA Tax Sp. z o.o.
Interested in the topic?