How to Calculate the Capital Gain on a Second Home?

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Whether acquired through a real estate purchase or an inheritance, a second home being resold can generate a capital gain subject to taxation. Winter Immobilier advises you on how to calculate your capital gain and estimate the flat tax rate it will be subject to: what expenses can be deducted to reduce the taxable capital gain on a second home? In which cases are you exempt from capital gains tax when reselling a second home?

Determining the taxable base of the capital gain on the resale of a second home

To find out the taxable base of your capital gain on the resale of your second home, you must first calculate the gross capital gain, from which various purchase and sale expenses can then be deducted. The gross capital gain consists of the difference between the purchase price of your second home and its resale price.

In the case of an inheritance, the acquisition price used to calculate this difference will be the estimate the notary based their work on when dividing the deceased's estate. The calculation of the gross capital gain is very simple up to this point: if your second home was purchased for €200,000 (or estimated at €200,000 during the succession), and you resell it for €250,000, your gross capital gain is €50,000.

Reducing the capital gain on a second home by deducting expenses

Before being taxed, the amount of the capital gain can however be reduced, by adjusting the increase of the purchase price and the reduction of the selling price. The tax and social contribution rates are indeed applied to the net capital gain, meaning after deductions and allowances.

Increasing the acquisition price by a flat rate or actual costs

The taxable capital gain is reduced by increasing the acquisition price through the inclusion of renovation expenses. This option only exists when the property has been held for 5 years or more before being resold. Several scenarios are possible:

• Renovation work has been carried out in the second home since its acquisition and this work was done by professionals, supported by invoices

• Work was carried out by the owner themselves

• The second home has not undergone any renovation work

In the last two cases, it will not be possible to deduct the actual costs of the renovation work from the capital gain, but it will instead be possible to apply a 15% flat-rate increase to the acquisition price, which has the effect of reducing the capital gain. In the first case, it will be necessary to evaluate whether it is more beneficial to increase the acquisition price by the actual amount of the expenses incurred for the work, or to apply the 15% flat-rate increase.

In addition to renovation expenses, acquisition costs and charges can also inflate the purchase price of the property, and thus reduce the taxable capital gain: here again, it is possible to deduct the actual costs (notary and registration fees), or to apply a 7.5% flat rate, which will be added to the 15% flat rate related to renovation expenses. In the case of a gross capital gain of €50,000 as mentioned previously, increasing the purchase price by 7.5% + 15%, meaning €45,000 more on a property acquired for €200,000, reduces the capital gain to €5,000!

Reducing the selling price by deducting expenses

On the other hand, the resale price of the property can also be legally modified in order to reduce the taxable capital gain. Conversely, it will be reduced by the costs associated with the sale, which will further narrow the gap with the purchase price. The expenses that can be deducted from the selling price when calculating the capital gain notably include agency fees, paid VAT, and the costs of compiling the technical diagnostic file (DPE, etc.).

Calculating the tax amount on the capital gain of your second home

Applying allowances

The net capital gain realized upon the sale of your second home is taxed under income tax and social contributions. But for each of these taxes, allowances are provided based on the holding period of the property: these allowances vary from 4% to 6% per year between the 6th and the 22nd year for the calculation of income tax, up to total exemption starting from the 22nd year.

The allowance rate applicable for social contributions varies from 1.65% to 9% from the 6th to the 30th year, up to total exemption after 30 years of holding the property. An exceptional allowance rate of 70% is also provided in two specific cases: if the second home is purchased to be demolished as part of a collective housing reconstruction project; or if it is located in an area where housing supply and demand are unbalanced.

Applying flat tax rates

The tax rates can be applied to the amount of the capital gain after calculating the allowances. With a flat rate of 17.2% for social contributions and a flat rate of 19% for income tax, the overall tax rate on the capital gain of your second home is 36.2%.

Applying the additional tax on large capital gains

Please note, in certain cases of high capital gains, a surtax is applied. This additional taxation concerns capital gains exceeding €50,000 after the application of allowances. Its rate varies from 2% to 6% depending on the amount of the capital gain.

How to be exempt from capital gains tax on a second home?

The capital gain realized upon the sale of a primary residence is exempt from income tax. In the context of the sale of a second home, however, only a few cases give rise to an exemption. The transfer is not subject to tax when the capital gain is less than €15,000 for a single person or €30,000 for a couple. The exemption also applies to owners of less than 5 years who will reinvest the proceeds of the sale into the purchase of their primary residence.

Winter Immobilier advises you on your future resale in Nice

Would you like more real estate resale advice and, more specifically, to discover the latest trends in real estate in Nice? Feel free to visit our real estate agency in Nice Gambetta or get in touch directly with one of our advisors by phone!