I thought I’d start a thread related to taxation. If we could gather questions and answers related to taxation here.
I myself would have questions about gift tax regarding real estate. How is the gift tax for real estate received as a gift formed in practice? Ok. The donation has been made and received, the deed of gift has been made, the fair value has been marked (probable transfer price).
If we now consider that the value of the property is 700k and this has been marked as the fair value and gift tax is paid based on this, then if the value of the property has, for example, decreased to 500k due to market turmoil, can one apply for an adjustment from the tax authorities for the gift taxes paid based on the realized sale price of the property, or is it just too bad..?
For example, in certain places/locations where there are not many statistics on sales prices, it is difficult to estimate the actual future value of the property to be sold. On the other hand, one does not want to undervalue the property, but also not overvalue it. If, for example, one has paid 200k in extra gift tax in that situation, can that be utilized or adjusted in any way anymore?
Unfortunately, it is indeed tough luck if the fair market value of the holdings drops. However, a realized capital loss can, in principle, be deducted in taxation, as long as you are prepared to prove that it was originally a fair market value and not an inflated gift tax value.
If, on the other hand, there was an obvious error in determining the fair market value originally (along the lines of: “forgot to account for the debt as an encumbrance”), there could be a good chance of getting a correction to the original gift tax decision through a claim for adjustment.
It’s more a matter of how the rise in interest rates and the global situation might affect prices and, as I wrote earlier, it is very difficult to estimate the sale price of a property in certain locations.
In my opinion, it’s a bit of a strange system that gift tax isn’t paid based on the actualized sale price, but instead, you have to guess the transaction price more than a year in advance. Of course, you can estimate it lower and pay capital gains tax on the portion that exceeds it, but I think gift tax is a poor fit for certain properties precisely because of that valuation issue. It really sucks to pay gift tax “in vain” on, for example, 200k euros. Especially if there’s no way to benefit from it… Besides, you can’t sell a gifted property until a year has passed, or you’ll end up paying capital gains tax in addition to the gift tax.
Why would anyone want to pump the gift tax value too high? Isn’t the goal to get the estimate right?
However, I would think that the tax authority cannot simultaneously hold the view that the gift tax value has been correctly determined at fair market value (no adjustment to gift tax), and that the gift tax value is higher than the fair market value (no deductible capital loss).
In your example, if you belong to gift tax category I, you pay less than 15% gift tax on that “extra” 200k, right? And if you then realize a 200k loss (more than a year later), you get nearly 34% in tax deductions for the losses.
I hadn’t even thought that it could be utilized that way, but rather that the loss could be utilized based on the paid gift tax %.. After all, that’s what the real “loss” is.
It’s more understandable that if you receive money, you pay concretely based on the amount you get, but in cases like these, it’s a total gamble what the value of the gifted property will be in a year and whether it will even sell then.. Well, in my view, this is a flaw.
Changes in the value of investments (read: assets) are, however, taxed under capital gains taxation. The idea is simple in itself and similar to listed shares: the value of the gift at the time of transfer is what it is, and if its value rises or falls, it is taxable capital gain or loss for the recipient. Within certain limitations.
Edit: I don’t disagree that the situation is difficult for assets whose fair value is hard to determine and liquidity is low.
I’ll have to see what the actual price ends up being. It hasn’t really been possible to estimate it since even real estate agents don’t have statistics, only wild guesses. Or then I’ll just have to leave the gift unsold and wait for its value to increase
It would indeed be easier to justify an incorrect gift tax value if the property had been on the public market since the receipt of the gift and wouldn’t sell. In that case, it might be easier to demonstrate to the tax authorities that an error occurred in the gift tax valuation.
However, I assumed you have waited that one year since receiving the gift so that the gift tax value can be used as the acquisition cost in the first place. In this case, it is difficult to prove that it is specifically anything other than a decrease in value during the ownership period.
Personally, I would ask the tax authorities for their position on that. But there’s no need to fear losses! That would be the best kind of tax manna if those losses could be deducted .
That’s how it is… It’s hard to imagine, though, that losses could be deducted. However, a rough price estimate was sought from a real estate agent (before determining the fair market value) which doesn’t deviate much from the fair value (the amount marked as a gift). If losses could be deducted in the way you described, everyone would pay extra gift tax quite deliberately just to make a profit on it.
And the property cannot be sold for a year or there will be tax sanctions regarding the gift… I guess in these situations you always have to guess what the actual sale price and market will be and at what value to assess the gift. If you undervalue it, you’ll pay capital gains tax on the excess; if you overvalue it, the gift tax goes to waste.
In my experience, the tax authorities monitor these losses arising from deeds of gift or estate inventories quite closely, which is why profiting in that manner isn’t possible.
In these types of situations, I have personally tried to use at least one external appraiser. Without an official appraisal report, you are easily subject to the tax authority’s discretion.
One thing I was wondering—though this obviously doesn’t help your situation anymore—is that if the intention is to sell right at the time of giving the gift, then from a gift tax valuation perspective, it might be more natural for the donor to carry out the sale themselves and then gift the cash once the sale price is finalized. It’s certainly a complex matter
It is not advisable in this case, as the donor would otherwise have to pay capital gains tax on the property. Giving the gift directly is more sensible in this instance. It is not a permanent residence/home, in which case the sale would be tax-free.
My question isn’t about taxes per se, but rather about pension contributions, but I’ll post it here anyway;
I’ve been doing side work as a light entrepreneur alongside my day job and studies. Well, now I received an email stating that I should get self-employed persons’ pension insurance (YEL), because my monthly income has exceeded a certain limit (approx. €650/month or so).
Well, I thought I’d just get one then. But then I looked at the price: over €2,000. This is on top of taxes. And of course, I’ve already paid pension contributions and such separately from my day job.
I’ve estimated that my annual income from this side hustle could be in the range of €9,000–10,000 per year. Apparently, the YEL threshold on an annual level is €8,575.45, which sounds ridiculously low.
Is there any solution to this? I could, of course, work less so that the total stays below that limit, but is that in anyone’s best interest? I should emphasize that I am not a full-time entrepreneur and never will be.
Regarding the deduction for income-generating expenses:
If a person purchases equipment for their home office in early 2023, such as a desk, an office chair, and a computer, each with a unit price below the €1,200 limit set by the tax authorities for a one-time deduction, can they deduct these expenses in their 2022 taxation or their 2023 taxation?
If the deduction is only eligible for 2023 taxation, how is this benefit realized? As a lower tax rate for the year 2023? As tax refunds in the 2023 tax assessment decision?
Purchases reported on the tax return are taken into account in the 2023 total taxation. For the portion exceeding the deductible, they will reduce potential back taxes or increase refunds, depending on the overall situation.
Hi, if I incurred capital losses from stock sales in 2022, but had no capital income in 2022, then in the 2023 taxation and for the next 4 years, I can deduct the paid dividend taxes and the withholding tax on a fixed-term account.
Is that how it works?
@Fiksaaja Realized capital losses are automatically
deducted from potential capital gains over the next 5 years; it shows up in the pre-filled tax return. At least that’s how it has worked for me.
Yes, if it’s a book-entry account, that’s exactly how it should work. That is, the loss is confirmed in the tax assessment and will be automatically deducted between 2023–2028, first from taxable capital gains and, if any loss remains, then from other capital income such as taxable dividend income and net rental income.
As a special case, @Fiksaaja, it’s worth remembering that if you have sold assets for a total of less than 1,000 euros during the year, the deductibility of losses is restricted and such a deductible loss will not be generated. There you can find more detailed information about the situation briefly. The link leads to the Finnish Tax Administration’s website, vero.fi.
Regarding interest on a fixed-term account, I should also mention that if it’s a domestic bank, it is typically interest income subject to tax at source. In these cases, the bank withholds the tax at source (30% up to 30,000 euros) at the time of payment, and you receive the interest net in your account. The tax at source is a final tax and the transaction will no longer appear separately on the tax assessment, nor can capital losses from previous years be deducted from the tax at source on interest. The bank can certainly provide more details on whether they have withheld the tax at source required by the law in question (Act on Tax at Source on Interest Income).
Special rules apply to foreign income and equity savings accounts.
.