Understanding capital gain and its calculation process

The real estate market requires increased focus, especially when it comes to buying or selling properties. It is important to pay attention to details that may seem insignificant at first glance. Capital gain has become a significant concept in property transactions.

The capital gains tax, established by law number 8,981 in 1995, has recently experienced some changes in 2017, leading to confusion among users, especially those who are not well-versed in the real estate market.

When we refer to capital gain, we are essentially discussing the selling of property and the potential tax implications on the sale value. This article will clarify the process for you.

What is a capital gain?

When a property is sold for more than its purchase price, the profit made is known as a capital gain.

Simply stating that this idea pertains to real estate sales and the impact of income tax on it may not be a sufficient explanation, hence we will elaborate further to clarify it.

Capital gain can be utilized across various financial domains, as any valuable asset has the potential to produce capital gain. This includes tangible assets such as real estate and personal property, intangible assets like trademarks and patents, financial instruments, and corporate holdings.

Why is capital gain significant in property sales? This profit value is subject to taxation.

When selling a property, it is crucial for the seller to understand their obligations towards the government, especially concerning capital gains which affect income tax calculations.

Calculating the profit earned from an investment

How can this value be calculated and assessed when declaring your income tax? The solutions to these inquiries are rather straightforward!

Calculating profit from investments using a real-life example

You may have observed that calculating the profit from a sale is straightforward: you simply deduct the purchase price from the selling price.

Let’s say you bought a piece of land for $600,000 and later decide to sell it for $850,000 after it appreciated in value. Using a mathematical formula, the calculation would be:

The outcome is R$250,000. This amount signifies the profit share you will receive from the sale of the property. This profit share is known as capital gain and is the amount to which you will apply the appropriate percentage to determine any income tax owed on the transaction.

Determining the amount of tax owed on profits from investments

Understanding how to report capital gains in your income tax return is even simpler than calculating them, as you just need to compare the obtained value with a predefined table.

This table shows the margins for profit gains and the corresponding percentage adjustments.

By selling your property for R$850,000.00 and making a profit of R$250,000.00, you would need to pay R$37,500.00 in income tax, which is 15% of the profit amount.

Are there instances where capital gains are exempt from income tax?

It is crucial to understand when not to impose taxes on your capital gains.

Three factors affect this value, leading to sellers being exempt from declaring income tax on the sale.

• Properties acquired before 1969 are exempt from taxes, regardless of any potential increase in value.
• People who own just one property and sell it for a price of up to R$440,000.00.
• When the individual who sold the property purchases another within 180 days, it indicates that sometimes a property is sold to facilitate a move to a new one.

The profit from selling a property is important, but there are also many other factors that impact individuals entering the real estate market.

Selling or buying properties has historically been viewed as a challenging field to enter, but it has undergone significant changes and modernizations, offering opportunities for participation.