What are the holding periods of a property and their influence on the capital gain?
The length of time a property is held has an impact on the capital gain. The most obvious consequences are the exemption and the abatement. However, there are some conditions to achieve the latter. Discover in the article the holding periods and their consequences on the capital gain.
Abatement with respect to the holding period
After the valuation of the capital gain, the deduction can be applied. This depends on the length of time the property has been held. The result is that the allowance will reduce the taxable gain. The rate of the allowance differs for income tax and for social security contributions. But in general, it applies to assets held for at least 6 years.
Abatement rate for income tax
For a holding period of less than 6 years, no deduction is applied on the income tax. But from the 6th to the 21st year, the rate is 6%. From the 22nd year onwards, the income tax deduction rate is 4%.
Everything changes after 22 years of ownership, as the deduction becomes an exemption. Also, the exemption applies to real estate held for more than 30 years.
Abatement rate for social security contributions
No allowance is applied for a holding of less than 6 years. From the 6th to the 2nd year, however, the rate of deduction is 1.65%. From the 22nd year of ownership, the rate is 1.60%.
Unlike the tax allowance, the exemption does not yet apply for a holding period of more than 22 years. At this point, the rate of deduction for social security contributions is still 9%. On the other hand, beyond the 30th year of ownership, the exemption gives way to the deduction.
Consequence of the deduction per year of ownership on the capital gain
The amount of the taxable capital gain is determined by a calculation which consists in applying abatements by year of detention. Please note that the duration to avoid taxation is different for tax and social security contributions. Therefore, the calculation of the allowance must also be done differently.
Thanks to the abatement, no capital gain is taxable after 22 years of ownership. This applies to all property, including building land. However, the exemption from social security contributions is available for 30 years of ownership of a property.
Calculation of the capital gain according to the abatements
Why are capital gains on real estate exempt from tax after 22 years of ownership? A calculation shows this logic. But this calculation is still not similar for income tax and social security contributions.
For income tax, the rate of deduction after 22 years is 100%, hence the tax exemption. Each year of ownership gives a 6% tax deduction when the ownership period exceeds 6 years and reaches 22 years. This reduction rate is 4% for the 22nd year or more of ownership.
For social security contributions, the longer the holding period, the greater the allowance. Thus, the rate of deduction is rather progressive. As with the tax, the allowance applies only after 6 years of holding the property. Finally, the rate reaches 100% after 30 years of ownership.
Counting the 22 and 30 years
The period is calculated from date to date, i.e. from the date of acquisition to the date of the final deed of sale. But it all depends on the type of property owned.
For purchased property, the period begins with the date of the notarized deed of sale. In the case of constructed property, the period begins with the start of the work. For property received by inheritance, it is the date of the opening of the inheritance that counts.
In short, the length of time the property has been held has a major influence on the capital gain. It is best to have all the information before proceeding with the sale.