In 2003, compared to the previous two years, the number of refusals to provide property tax deductions significantly decreased. Tax officials became more loyal, and taxpayers - more educated. However, the nuances of the procedure for returning money for transactions made on the housing market are still far from known to everyone.

Being a participant in a transaction for the purchase and sale of real estate (residential buildings, apartments, summer houses, garden houses, land plots), citizens, as a rule, forget that the current legislation of the Russian Federation provides them with property tax deductions. Acting both as a buyer and as a seller, a citizen has the opportunity to most optimally exercise his right to reduce the amount payable or to reimburse already paid personal income tax.

The procedure for providing property tax deductions (we consider it only in connection with real estate transactions), i.e. reducing taxable income, is regulated by Article 220 of the Tax Code of the Russian Federation. This article establishes the right of a citizen who is a seller or buyer of real estate to receive the following property tax deductions:

- on the amount of income received from the sale of real estate (property deduction for the sale of real estate);

- the amount of expenses for new construction or acquisition of a residential building or apartment in the Russian Federation (property deduction for construction or acquisition of housing).

The right to receive property tax deductions is granted to individuals who are tax residents of the Russian Federation, i.e., who are located in the territory of the Russian Federation for at least 183 calendar days per year (clause 3 of the Methodological Recommendations for Tax Authorities on the Procedure for Applying Chapter 23 "Personal Income Tax" of Part II of the Tax Code of the Russian Federation).

Property deductions are provided only by the tax authority upon a written application from the taxpayer when he/she submits an income tax return for the past tax period (calendar year).

What can a seller do?

The amount of property tax deduction when selling real estate depends on the period during which the sold real estate was owned by the seller.

If the sold residential building, apartment, summer house, garden house or land plot was owned by the seller for at least five years, then the income received by the seller as a result of the purchase and sale transaction is not subject to tax.

If the sold residential building, apartment, summer house, garden house or land plot was owned by the seller for less than five years, then the income from their sale for tax purposes may be reduced at the taxpayer’s discretion - either by the amount of expenses actually incurred by the seller and documented in connection with the acquisition (construction) of this real estate, or by an amount within 1 million rubles.

It should be noted that if the property sold was in common shared or common joint ownership of the sellers, the amount of the property tax deduction is distributed among all sellers of this property in proportion to their share or by agreement between them (in the case of the sale of property that was in common joint ownership).

It should be especially noted that these provisions of the Tax Code of the Russian Federation do not apply to income received by individual entrepreneurs from the sale of property, including real estate, in connection with their entrepreneurial activities.

What is available to the buyer?

The income received by the taxpayer for the year (tax period) may be reduced for the purposes of calculating income tax by the amount spent on new construction or acquisition of a residential building or apartment in the territory of the Russian Federation, in the amount of actual expenses incurred, but not more than 1 million rubles.

Taxable income may also be reduced by the amount of expenses incurred to pay off interest on mortgage loans received by the taxpayer from Russian banks and actually spent by him on new construction or the acquisition of a residential building or apartment in the Russian Federation.

If the income received does not allow the property tax deduction to be used in full in one tax period, the remainder of the tax deduction may be carried over to subsequent tax periods until it is fully used. However, the wording contained in Article 220 of the Tax Code of the Russian Federation does not allow us to conclude on what factors and conditions the decision to carry over the remainder of the tax deduction to subsequent tax periods depends. Considering that a citizen who has applied for a property tax deduction communicates with a tax inspector who is handling his tax case, we believe that this issue will most likely be resolved by this person. If the taxpayer does not agree with the decision of the tax authority, he has the right to appeal this decision to a higher tax authority (higher official) or to the court.

To receive a property tax deduction, it is necessary to attach to the declaration and written application of the taxpayer documents confirming the right of ownership of the purchased (built) residential building or apartment, as well as documents confirming the fact of payment of funds by the taxpayer. The current legislation of the Russian Federation does not contain an exhaustive list of documents that can confirm the fact of payment of funds. In particular, the Tax Code of the Russian Federation names some of them: receipts for cash receipts, bank statements on the transfer of funds from the buyer's account to the seller's account, sales and cash receipts, acts on the purchase of materials from individuals indicating the address and passport details of the seller. The only requirement for payment documents imposed by the Tax Code of the Russian Federation is their execution in the established manner.

If the property is acquired in common shared or common joint ownership, the amount of the property tax deduction is distributed between the co-owners (buyers) in accordance with their share of ownership or with their written application (in the case of acquiring a residential building or apartment in common joint ownership).

What you can't do.

The Tax Code of the Russian Federation defines cases when the property tax deduction for the construction or acquisition of housing is not applied. In particular, tax authorities will not accommodate the consumer when the payment of expenses for the construction or acquisition of a residential building or apartment for the taxpayer is made at the expense of employers or other persons; when the purchase and sale transaction of a residential building or apartment is made between individuals who are interdependent, recognized as such by a court decision that has entered into legal force. That is, a fictitious transaction for the alleged acquisition of an apartment from one's own grandmother is unlikely to help evade taxes.

When deciding to apply for a tax deduction for the construction or purchase of housing, it should be borne in mind that this tax deduction is provided to the taxpayer only once.

Practical application.

The mechanism for providing property tax deductions is already well established. The paid income tax is returned to the taxpayer's account opened in a branch of Sberbank of the Russian Federation within a month after submitting a full package of documents to the tax inspectorate.

Compared to 2001-2002, the number of refusals to provide property tax deductions has significantly decreased in the past year. According to our data, tax authorities have refused approximately 2-3% of applications. This fact is explained not only by the increased awareness of taxpayers about the provisions of the current legislation of the Russian Federation, but also by a more loyal policy of tax authorities on this issue. For example, if previously deductions were not provided when the contract of sale of property was drawn up in the name of one person, and payment under this contract was made by another individual, then at present income tax is reimbursed provided that a corresponding power of attorney from the purchaser of the property, drawn up in the name of the actual payer, is attached to the payment document. Moreover, notarization of such a power of attorney is not required if these persons are spouses or acquire property in shared ownership (if one of the purchasers acts as the payer).

Reasons for refusal.

One of the reasons for refusal is a repeated application for a deduction. It should be borne in mind that in the case of a repeated application, a deduction is provided only in one case - when the taxpayer, before 2001, fully used the income tax benefit for expenses on the purchase of housing, which was provided to him under the law of the Russian Federation of 7.12.1991 N 1998-1 "On Income Tax for Individuals" in effect at that time. When purchasing housing after 2001, he has the right to a property deduction in accordance with the Tax Code of the Russian Federation.

Refusals also occur when applying for an unused balance of the property tax deduction for the purchase (construction) of housing in the event that the apartment or residential building has already been sold or donated to another person. In this case, the taxpayer no longer has the right of ownership to the apartment or residential building. But the fact is that, when applying for the remainder of the tax deduction, the taxpayer is obliged to provide a full set of documents, including a valid certificate of ownership of the apartment (residential building), and the validity of this document is terminated at the time of transfer of ownership.

Another reason for refusing to provide a tax deduction is the incorrect calculation of the amount of tax deductions. As a rule, this occurs in the following cases. For example, when purchasing property in common shared or common joint ownership, the co-owner believes that he has the right to the entire amount of the property tax deduction in the amount of 1 million rubles. However, according to the law, he has the right to reduce his income only by an amount calculated from 1 million rubles in proportion to his share in the joint (shared) ownership. Another option is when several rooms in a communal apartment are successively purchased and a certificate of ownership is issued for each. In this case, the deduction is provided only for the cost of one of the rooms (the principle of a one-time provision of a tax deduction). However, it is better not to rush - if the buyer (necessarily an individual) applies for a tax deduction after he has become the owner of the entire apartment, then the tax deduction is provided for all purchased rooms.

Another technical but important point: knowing about their right to reduce income tax, home buyers sometimes contact tax offices not at the end of the calendar year, but immediately after completing the housing documents. It should be understood that deductions are not a reimbursement of part of the expenses incurred to purchase housing, but a reduction in the annual income received in order to return the income tax paid, and they can only be provided at the end of the calendar year and confirmation of income with certificates from the place of work or other documents.

Just in case.

In conclusion, we would like to draw attention to the fact that when receiving income from the sale of real estate, a tax return must be submitted, in accordance with which tax deductions are provided. Although registration authorities are no longer required to notify tax inspectorates about real estate purchase and sale transactions (since August 9, 2003), channels for obtaining such information exist, and cases (so far isolated) of violators being held liable for taxes do occur.

POINT OF VIEW: Give the money back