What is the capital gain made on the sale of your home. An important question, as it limits the amount of mortgage you can take out for the next home to be purchased.
What is the capital gain made on the sale of your home?
In the Netherlands your home is the house you and your family see as your house. If that house was purchased, the Dutch Government accepts that you deduct the costs of the loan taken out for the purchase from your taxable income.
This mortgage deduction is only applicable for your home, not any house. If you invest in more than one house/apartment, only the one that is regarded your main residence, you can deduct the mortgage interest.
Capital gain tax
We do not know the concept of capital gain tax in the Netherlands. That implies, if you sell your home and you make a profit. This profit is not regarded a taxable income.
For those who think they can out clever the Dutch Government. If you purchase a house the one months and you sell the other month with a profit. The profit is tax free. When you soon after that transaction, do it again, it is arbitrary if that is indeed a tax free capital gain. Another sale and the Dutch Government labels your activities as work. You have done more than what a normal home owner would have done in activities, which resulted in a profit. That profit or capital gain is taxed.
The moment you make losses, even after many transactions in a row, the Dutch Government is opportune enough not to label that as work, hence no loss tax deduction.
Capital gain needs to be reinvested
The capital gain is tax free. Example, in the days before 2008 the Dutch would made a gain on the sale of the house. For instance, EUR 100.000. They purchase the Porsche with the gain and fully refinanced the next house.
2008 was a game changer as in that year we learned that you can also make a loss on the sale of the house. So much a loss, that not enough money was made with the sale of the house to repay the mortgage. Unlike other countries, the mortgage does not disappear when you through the keys of the house over the fence. The mortgage becomes then your personal debt.
The rules were quickly changed into the current rules. The capital gain made is still tax free, but needs to be reinvested in the next home purchased.
What is the penalty if you do not reinvest the capital gain?
The penalty for not reinvesting the capital gain in the next home is that the mortgage interest for the value of the capital gain is not tax deductible.
What is the capital gain made on the sale of the house?
A capital gain needs to be determined before it can be used in calculations.
Example. You purchase a home for EUR 450.000 in 2015, fully mortgaged. Over the period till today the repayments on the mortgage were EUR 80.000. The house is sold in 2022 for EUR 680.000. What is the profit?
The profit is the difference between the sale price of the house and the remaining mortgage debt at the moment of the sale of the house. The mortgage was EUR 450.000 minus EUR 80.000 is EUR 370.000. That implies the profit made is EUR 680.000 minus EUR 370.000 is EUR 310.000.
When the new house you purchase has a EUR 750.000 value you are supposed to pay EUR 310.000 on the house, which leaves EUR 440.000 over for which you can take out a mortgage.
Capital gain and emigration
The moment you leave the Netherlands, you sell your Dutch home, make a profit. This profit you simply take with you to your new destination outside the Netherlands.
Mind you, some countries are very much aware we do not tax capital gains of property. A lot of countries are aware. If you sell the Dutch home after you registered as tax resident in that other country, the other country probably charges you for the capital gain tax. Maybe you first sell the Dutch home and then change your fiscal residency…
Tax is exciting
We think tax is exciting. A capital gain not being taxed should make you excited as well.