Taxpayers will lose the reinvestment exemption if the sold property was not their primary residence in the two previous years

The application of the reinvestment exemption on capital gains derived from the transfer of a primary residence is one of the most commonly used mechanisms to optimize the tax burden in Personal Income Tax (IRPF). However, compliance with the temporal residence requirements is strict, and failure to comply entails the full payment of the tax on the gain obtained.

What the DGT has ruled

The Dirección General de Tributos (DGT) has determined that, to benefit from the tax relief provided for in Article 38.1 of the IRPF Law, the property being transferred must hold the status of primary residence at the time of the sale or must have been so in the two years immediately preceding the date of the transfer.

In the case analyzed, the taxpayer stopped residing in their home and acquired a new one in the same year. At the time of the transfer of the first property, it no longer met the requirement of being the primary residence nor of having been so in the two-year period required by the regulations. Consequently, the administration rules that the reinvestment exemption is not applicable.

What this means for you

This criterion establishes a clear temporal limit for owners planning to sell their residence to acquire another. It is not enough that the sold property was their home in the past; it is necessary that the change of residence or the vacancy of the property has not exceeded the 24-month threshold prior to the sale operation.

If the transferred property loses its status as a primary residence due to a change of address prior to the sale, the capital gain generated will be subject to the corresponding taxation in the savings tax base, without the possibility of deferring the tax through the purchase of a new property.

What you should do

It is necessary to verify the exact date on which the change of primary residence occurred before proceeding with the transfer of any property with the intention of reinvesting. Compliance with the requirements established in the IRPF Law and the IRPF Regulation is decisive to avoid tax contingencies. Each situation of residential mobility must be analyzed to confirm whether the right to the exemption is maintained according to the timeline of the operations.