Opinion – Marcia Dessen: Pay less income tax on property sales

Does it bother you to declare your residential property worth R$1.4 million for R$200,000? To me, yes. What about that old VGBL, which is already ten years old, recorded in the declaration for a much lower value than the current balance? Another oddity, isn’t it?

Oh, and long-ago shares that are still recorded at acquisition price? They are worth a lot more now, why can’t we update the value each year? I confess that I only stopped complaining and thinking I was wrong when I understood why it is so.

Remember that the declaration is made to the Internal Revenue Service and that its purpose is to collect tax on income and capital gains eligible for taxation. The collection of the tax can only be done in the generating event, defined by the Revenue itself, normally the sale (or redemption) of the asset, an event that wakes up the lion and signals that it is time to deliver part of the gain to the tax authorities.

Income tax, when applicable, is levied on income or net capital gain, calculated on the difference between the sale price and the purchase price, less the operating costs allowed. The lion’s share (rate) is defined based on the type of asset and the amount of income or capital gain.

As we cannot update the value of the assets in the assets and rights sheet, our assets will always be nominal. Neither official inflation can be used to update the value of assets, the Revenue does not want to know the current value of each taxpayer’s wealth, it wants to know the nominal value of acquisition, necessary to calculate the value of the gain and finally define the tax amount. , when due.

I return to the example of the property. As it is an asset held for many years, there is a big difference between the purchase price and the current market value. It means that when the property is sold, both the capital gain and the tax payable will potentially be high.

If we could correct or update the value of the property annually, the gain would be lower at the time of sale and the lower the tax payable. Well, we’ve already seen that it can’t, but what can we do today to reduce the real estate income tax in the future?

Those who carried out renovations and improvements to the property, for example, can and must add the value of the expenses to the acquisition value in the corresponding year.

See what the Revenue says in item 636 in Questions & Answers IRPF 2022. “They can integrate the acquisition cost, when proven with suitable and suitable documentation, and detailed in the income statement for the calendar year of the expense:

• a) expenses with construction, expansion and renovation, provided that the projects have been approved by the competent municipal bodies;
• b) expenses with small works, such as painting, tile repairs, plumbing, floors, walls;
• c) expenses with demolition of a building built on the land, provided that it is a condition for the sale to take place;
• d) brokerage expenses related to the acquisition of the property sold, provided that the burden is borne by the seller;
• e) expenses with public works such as laying curbs, gutters, paving roads, installing a sewage and electricity network that benefited the property;
• f) the value of the transfer tax paid by the seller on the acquisition of the sold property;
• g) the value of the improvement contribution;
• h) the value of the laudêmio paid to the landlord or owner for giving up his right of option; i) the interest and other additions paid for the acquisition of the property;
• j) expenses with the deed and registration of the property, whose onus was on the purchaser.”

See how much can be included in the acquisition cost? In this way, the capital gain will be lower and the IR due when the property is sold will be lower. If you had expenses and expenses of this nature in 2021, don’t forget to update the value of the property on the assets and rights sheet.

If expenses incurred in the previous five years were not reported, consider whether it is worth making a rectification statement.

To conclude, I mention the tax reform project that, if approved, will allow the updating of the value of the property in the DIRPF with payment of only 4% of IR. The good news is that the rate will be much lower than the current rate, 15% on capital gains of up to R$5 million.

The bad news is to pay tax in advance, to pay in advance a tax that could be paid (or not paid) many years from now. I promise to write about this when and if the project is approved.