Imagine this situation: you have invested in a house in the United States and, over time, decide to sell it. This is where the concept of occasional exempt gain comes into play. This legal regulation provides a great opportunity for investors. Primarily, it allows them to make a profit from the sale of properties without having to pay taxes in certain scenarios.

But what are those scenarios and how can you make sure you meet the requirements? Keep reading and find out in this article.

Comparison between United States and Colombia

In an increasingly globalized world, real estate investors have more alternatives than ever before. This implies that they must take into account certain details. For example, choosing between different jurisdictions to make your investments. When it comes to the occasional exempt gain in the real estate market, it is crucial to understand how legislations differ in different countries.

How is the occasional profit exempt in the United States

In the United States, profits made from the sale of a home can be considered tax-exempt if certain conditions are met:

  • Have lived in the property as a primary residence for at least two of the five years prior to the sale.
  • The net profit from the sale of the property must be below a set limit. If the profit is higher than this limit, taxes may be levied on the portion exceeding the limit.
  • To take full advantage of the benefit, the owner must not have used this exemption on the sale of another property in the previous two years.
  • The tax exemption applies to tax residents. If a person is not a tax resident, they may be subject to different taxes. In some cases, you will need to pay higher rates on capital gains.
  • A natural person can subtract up to $250,000 in taxes from that gain. If a joint return is filed with a spouse, that amount increases to $500,000 (IRS, 2019).

How is the occasional profit exempt in Colombia?

In Colombia, Article 31 of Law 2277 of 2022 establishes the following conditions for exempt occasional gain:

  • Be a natural person and have owned a home for at least two years prior to the sale. In this case, no taxes will have to be paid on the first 5,000 Tax Value Units (UVT). This equates to $212,060,000 in 2023 (Update, 2023).
  • All proceeds from that sale must be deposited in an AFC savings account, or “savings for the promotion of construction” (DIAN, 2023).
  • The funds must be used for the purchase of another residential property or for the payment of mortgage loans linked to the home that was sold (Gerencie, 2023).

How do you know if you are eligible for occasional exempt earnings?

In short, you can apply if you are part of the owners and residents of apartments and houses in the United States.

If more than two years ago you decided to invest in dollars in Miami real estate and live there, you will have already met the main criteria. So, if you decide it’s the right time to sell your property, you’re not just exempt.

You may also get significant value compared to what you invested. This is because the demand for the real estate market is constantly increasing. This means that instead of allocating a substantial part of your profits to taxes, you can reinvest them in another real estate project.

We recommend investigating further if you want to get the most out of these benefits of occasional exempt winning. Consult with expert advisors to maximize your profits and minimize your tax liabilities. Smart investing starts with knowledge!

References

  • Update (2023). Requirements of the occasional exempt gain in the sale of housing. Upgrade. https://actualicese.com/requisitos-de-la-ganancia-ocasional-exenta-en-venta-de-vivienda/
  • DIAN (2023). Concept 3966 of 2023 DIAN. DIAN. https://normograma.dian.gov.co/dian/compilacion/docs/oficio_dian_3966_2023.htm
  • Gerencie (2023). Exemption on the sale of house or apartment room. Gerencie.com. https://www.gerencie.com/exencion-en-la-venta-de-casa-o-apartamento-de-habitacion.html
  • IRS (2019). Tax tips for the taxpayer when selling their home. IRS. https://www.irs.gov/es/newsroom/tax-tips-for-taxpayers-to-consider-when-selling-their-home