Tax on Selling the First Apartment — What Determines the Amount.

Selling the first apartment can be both a profitable deal and a financial challenge. The main question that concerns the property owner is: will they have to pay taxes, and if so, which ones? It all depends on the length of property ownership, the owner's status, the source of property acquisition, and the number of sales in a year.

The legislation places the obligation to pay taxes primarily on the seller, emphasizes lawyer Iryna Smitiukh in a comment to the UNIAN agency.

The buyer, in turn, must pay a contribution to the Pension Fund (1% of the property's value) and usually partially takes on the notary fees. But the main obligations lie with the one who sells.

As Smitiukh notes, the seller of the first apartment potentially has to pay:

• personal income tax (PIT) — 5% or 18% depending on the circumstances;
• military tax — 5%;
• state duty — 1%;
• notary services — by agreement of the parties.

However, in certain cases, the first sale of a property may incur minimal taxes or even none at all.

When the tax on the first sale of an apartment is not paid

The preferential regime applies to the first sale of an apartment in a year if it has been owned for more than three years. According to Smitiukh, in this case, the seller is exempt from both PIT and military tax. Thus, only 2% will need to be paid — 1% to the Pension Fund and as state duty.

'If the apartment has been owned for more than three years and this is the first sale of the year — the tax burden is minimal. Such a sale is the most beneficial for the owner', emphasized the lawyer.

What is the tax on selling an apartment under three years

If the first apartment is sold before three years of ownership have passed, the situation changes. In addition to the 2% fees, one will have to pay 5% PIT and 5% military tax. Thus, the total tax burden may reach 12%.

'Military tax is applied only together with PIT. If you are exempt from one — you automatically do not pay the other', the lawyer points out.

Does the tax change if this is the second sale in a year

Despite the fact that the apartment is the first on paper (i.e., no other property has been sold), the key factor is not the number of apartments, but the number of sales within a calendar year. If the sale is not the first — there will be no exemptions.

In this case, PIT rises to 18%, military tax — an additional 5%, and together with other payments, the tax may total up to 25% of the property's value. This is a significant burden which, according to Smitiukh, can be partially alleviated.

'If this is already the third sale of the year, the tax is calculated not on the entire amount, but only on the profit. That is, from the sale price minus documented purchase expenses', the expert explains.

How the tax base is determined when selling an apartment

Taxes are calculated based on the income received by the seller. According to Smitiukh, this is the price specified in the purchase agreement. However, there are limitations: it cannot be lower than the appraised value of the property.

'We do not recommend artificially lowering the price of the property in the agreement to reduce taxes. In case of a court dispute, such a scheme can backfire — proving actual losses will be virtually impossible', warns the lawyer.

Who can be exempt from paying taxes when selling property

Some categories of citizens may be exempt from paying state duty:

• disabled persons of I and II groups;
• those affected by the Chernobyl disaster;
• participants in combat actions;
• families of deceased military personnel.

'Complete exemption is possible only when both parties to the transaction qualify for the benefit. If not, the notary will require the other party to pay the duty in full', clarifies Smitiukh.

Regarding the contribution to the Pension Fund, those who are buying property for the first Time, have not participated in privatization, and have not received property by inheritance or as a gift may not have to pay it. But this also needs to be documented.