Calculation of capital gains on real estate sold in foreign currency

Determining the capital result in real estate transactions involving foreign currencies raises frequent doubts regarding the timing and method of conversion into euros. The Dirección General de Tributos (DGT) has clarified the technical procedure that taxpayers must follow to comply with the regulations of Personal Income Tax (IRPF).

What the DGT has resolved

In response to a query regarding how to calculate the capital variation of a property whose purchase and sale are carried out in dollars, the body has specified that the calculation should not be performed by converting each amount separately and in isolation, but rather by following a logical order of conversion.

The criteria establish that:

• First, the capital gain or loss must be calculated in the original currency (in this case, dollars).
• Second, that resulting difference must be converted into euros using the exchange rate in force on the date of the capital alteration.
• Third, if after the sale the dollars are subsequently converted into euros, the exchange difference generated will be considered a separate capital gain or loss at the time of said effective exchange.

What this means for you

This criterion has a direct impact on residents who hold assets abroad acquired or sold in a currency other than the euro. The most common error would be attempting to convert the acquisition price and the transfer price independently without considering the nature of the original currency, which could distort the actual tax result.

It is fundamental to understand that the real estate sale operation and the subsequent conversion of the resulting currency into euros are two economic events with different tax consequences. The first determines the gain from the transfer of the asset, while the second determines the gain or loss from the exchange difference.

What you should do

To avoid errors in the IRPF tax return, it is necessary to accurately document the applicable exchange rates on each key date: the acquisition date, the transfer date, and the currency conversion date. Since the calculation depends on the original currency and not just on the amounts in euros, it is recommended to assess each particular situation to ensure that the conversion of the exchange difference is recorded at the correct time.