The abolition of real estate transfer tax in the Czech Republic has already been the subject of discussion several times. However, during the coronavirus crisis, the pressure to cancel the tax increased to the point, where the government approved the draft law on transfer tax abolition in May. The proposal to abolish the real estate transfer tax with 4% tax rate of the total purchase price was approved by the Chamber of Deputies, and the proposal will then be forwarded to the Senate for voting. After that the Senate will have 30 days to discuss it and vote.
Drafting proposal maintained the tax deduction of interest rates. Tax deduction of the total paid interest will be possible up to the maximum of CZK 150,000. This amount represents half of the current maximum amount that can be deducted from taxes. The new limit for interest deduction will be applicable to loans signed after January 1, 2022.
The draft law not only includes the tax abolition, but also includes a new time test for the payment of income tax on the sale of real estate. The test will be extended from the original 5 years to 10 years of property ownership. The extended time test will be valid for properties acquired from 1 January 2021.
The abolition of the property transfer tax should help the real estate market in times of crisis. Future development of the real estate and mortgage market will also depend on the development of the coronavirus situation. In case of a positive development, mortgage applicants could look forward to interesting offers from banks. Otherwise there is a risk of reintroducing stricter criteria for mortgage applicants.