Income Tax on the Sale of Inherited Real Estate
In Estonia, the taxation of income from the sale of real estate is governed by the Income Tax Act (TuMS). Many heirs mistakenly believe that selling inherited property is always tax-free. However, the tax liability depends primarily on whether the property served as your primary residence.
When is the sale tax-exempt?
Pursuant to § 15 (5) 1) of the Income Tax Act, income from the sale of immovable property is exempt from income tax if the property has been used as the taxpayer's permanent residence until the sale. If you have moved into the inherited property and used it as your home, the transaction is generally tax-exempt.
When is income tax applicable?
If the inherited property is not your permanent residence, the profit from the sale is considered taxable income. The profit is calculated as the difference between the selling price and the acquisition cost (TuMS § 37). In the case of inheritance, the acquisition cost is deemed to be the expenses incurred by the deceased (the testator). If the deceased owned the property for a long time, the acquisition cost might be close to zero, meaning almost the entire sale price is subject to a 20% income tax.
Deductible expenses
You are permitted to deduct documented expenses directly related to the sale, such as notary fees, state fees, and brokerage commissions (TuMS § 38). These expenses effectively reduce the taxable base.
Conclusion
If you do not reside in the inherited property, you must pay 20% income tax on the profit. It is crucial to verify the acquisition cost and potential deductions before finalizing the sale.
Do you need a precise calculation or legal advice regarding the taxation of your property sale? Our professional team at Legal Aid 24 is here to assist you. Ask our advanced legal AI assistant for a personalized analysis of your unique situation today!