ItalianTaxes.com

If you’re selling property in Italy, understanding the capital gains tax is essential to ensure compliance and optimize your financial outcome. Whether you’re an Italian resident or a foreign investor, knowing when and how capital gains tax applies can help you plan your sale efficiently and avoid unnecessary taxation.

What Is Capital Gains Tax in Italy?

Capital gains tax in Italy applies to the profit made from selling a property—that is, the difference between the purchase price and the sale price, adjusted for certain costs. However, not all property sales are subject to this tax. The Italian tax system considers key factors such as how long you’ve owned the property and whether it was your primary residence (prima casa).

Who Needs to Pay Capital Gains Tax?

You may be subject to capital gains tax when selling an Italian property under the following conditions:

The property is sold within five years of purchase.
The sale generates a profit (i.e., the sale price exceeds the purchase price plus eligible deductible costs).

Who Is Exempt from Capital Gains Tax?

You may be exempt from paying capital gains tax if:

You have owned the property for more than five years.
The property was used as your prima casa for most of your ownership.
The property was inherited. Inherited properties are not subject to capital gains tax in Italy.

How Is Capital Gains Tax Calculated?

Capital gains tax is applied to the net profit from the sale of the property. The basic formula is:

Capital Gain = Sale Price - (Purchase Price + Eligible Costs)

Eligible Deductions Include:

Notary fees and legal costs related to the purchase
Real estate agent commissions
Renovation and home improvement costs (with valid invoices)
Property registration and transfer taxes paid at the time of purchase

Capital Gains Tax Rates in Italy

If you are liable for capital gains tax, you can choose between two taxation methods:

1. Standard Income Tax (IRPEF)

The gain is taxed as part of your overall annual income, using Italy’s progressive income tax brackets (ranging from 23% to 43%).

2. Substitute Tax (Imposta Sostitutiva)

You may opt for a flat 26% tax rate on the gain. This method is often simpler and more predictable, but the election must be made at the time of sale and handled by the notary.

Capital Gains Tax for Non-Residents

Non-resident property owners, including U.S. citizens, UK nationals, and others, must comply with Italian capital gains tax rules. The good news is that Italy has tax treaties with many countries, including the United States, which can help prevent double taxation.

As a non-resident, you should:

Verify whether your home country has a tax treaty with Italy.
Determine whether the gain must also be reported on your home country’s tax return.
Work with a cross-border tax advisor to minimize liability and ensure compliance in both countries.

How to Report and Pay Capital Gains Tax

If capital gains tax applies to your property sale, here are the steps you’ll need to follow:

Declare the gain in your annual Italian tax return (if using IRPEF).
Elect the flat 26% substitute tax at the time of the sale with the notary.
Submit payment using the F24 tax form if self-reporting.
Retain all documentation for deductible expenses to support your tax calculation.

Tax Planning Strategies to Reduce Capital Gains Tax

There are several legal ways to reduce or avoid capital gains tax in Italy:

Hold the property for more than five years to become eligible for exemption.
Use the property as your primary residence, which can qualify it for full or partial exemption.
Keep invoices and records of home improvements to deduct eligible costs from your gain.
Leverage tax treaties to reduce or eliminate foreign tax liability on gains.

Common Mistakes to Avoid

Failing to track deductible expenses — Without documentation, you may lose the ability to reduce your taxable gain.
Misclassifying property use — If your property was used for short-term rentals, it may be taxed differently.
Selling before five years without a plan — This can trigger unnecessary tax liability.
Ignoring international tax treaties — Failing to understand treaty provisions can result in double taxation.

Need Assistance with Property Taxation?

Selling real estate in Italy involves complex tax rules—especially for foreign or non-resident owners. Capital gains tax can significantly impact your proceeds from the sale. At ItalianTaxes.com, we help sellers: