Property taxes on real estate: what you need to know before selling, gifting, or inheriting

What does taxation depend on when selling real estate?

When selling real estate, it is important to take into account a number of circumstances:

• the manner in which the property was acquired — whether the apartment was purchased under a sale contract, received as an inheritance, or given as a gift;
• the length of time the property has been owned;
• the number of real estate sales during the calendar year;
• the type of property being sold;
• the presence of documented acquisition costs — in cases where such costs may be considered when determining taxable income.

Taxation rules for an apartment that has been owned longer than the period established by law may differ from the rules that apply to property recently acquired or received by inheritance or as a gift.

What should be checked before a real estate transaction?

The main advice is not to postpone tax questions until the contract is already being prepared for signing. If a sale, gift, or other transaction involving real estate is planned, it is worth checking the property documents in advance: the acquisition history, length of ownership, prior transactions, and possible tax benefits.

Rules can apply differently in each specific situation, so there is no universal procedure for all transactions. That is why, before formalizing the transaction, it is important to consult a lawyer, calculate the tax amount, and verify whether there are lawful grounds to reduce it.

What is the “third sale” of real estate in a year?

The “third sale” is the third successive transaction disposing of real estate within a calendar year. For example, if a person first sold one apartment, then a second, and then a third, the last transaction will be considered the third sale of the year.

Such disposals can even be carried out on the same day. If during that day a person sequentially sells three real estate properties, they are still counted in order as the first sale, the second, and the third.

How is the third real estate sale of the year taxed?

The third real estate sale within a year provides an opportunity to reduce the tax amount. To do this, the owner must provide proof of how much they originally paid for the property. For example, if an apartment was purchased for one million hryvnias and later sold for 1.2 million, the tax applies only to the difference between the purchase price and the sale price. In this example, that amounts to 200,000 hryvnias. However, to qualify, the owner must provide documentary evidence that one million hryvnias was indeed spent on the purchase of this property.

What documents can be used to verify the costs of purchasing or constructing real estate?

The Tax Code does not establish a single, specific, universal list of documents that can be used in every case to confirm such expenses. It is important to have documents that confirm the very fact of the real estate purchase and the expenses incurred:

• a copy of the notarized contract under which the real estate was purchased or bank documents confirming the payment;
• an agreement with the developer, all its annexes, and payment documents, if you purchased an apartment in a new building;
• cash register receipts, if funds were paid through the company’s cashier;
• contracts with contractors and documents confirming payment for their services, if you built the house yourself.

Therefore, it is best not to discard documents related to the purchase or construction of a property.

How can you prove how many properties a person sold during the year?

To determine which real estate sale occurred during the year, the chronology of the transactions is crucial. This can be confirmed by the documents prepared during each real estate transaction. However, in complex situations, the question remains whether the tax authority will recognize all the provided documents as sufficient proof of expenses. Therefore, before concluding a transaction, you may seek individual tax advice.

In such a request, you can describe your situation, specify which documents the owner has, and ask whether they entitle the owner to claim the tax benefit. If the tax authorities provide a response with which the owner disagrees, the owner will have to defend their right to the tax benefit in the future, including in court.

How is tax paid when selling an apartment that is jointly owned?

If an apartment is owned by several co-owners, each of them pays tax separately on their own share. For example, two people each own a 1/2 share of the apartment. If they sell their shares simultaneously under a single contract, each receives income from the sale of their share and pays taxes separately.

If the entire apartment is worth one million hryvnias and the co-owners’ shares are equal, each person’s income from the sale will be 500,000 hryvnias. The tax for each person will be calculated based on this amount.

At the same time, the number of prior sales is also determined separately for each co-owner. For example, if one of them has already sold real estate within the year and the sale of their share is their third, the applicable tax rules for a third sale will apply to them. For the other co-owner, this same transaction may be their first sale of the year.

Is tax due when gifting an apartment to close relatives?

If an apartment is gifted to a first- or second-degree relative, the tax rate is zero percent. Such relatives include, in particular, parents, children, and grandparents.

However, drawing up a gift agreement still involves costs. A notary reviews the documents, certifies the agreement, and performs the necessary registration procedures. These services must be paid for.

There may also be costs associated with appraising the property. If the gift is made between close relatives, an appraisal for tax purposes is not required since no tax is due. In practice, however, notaries sometimes still request an appraisal, for which a fee must be paid.

Is tax due on a gifted apartment if a close relative is a non-resident of Ukraine or lives abroad?

Citizenship alone does not determine a person’s tax status. Under the Tax Code, resident status is determined based on permanent residence, the center of vital interests, and other criteria provided by law. If it is impossible to determine status based on these criteria, Ukrainian citizenship is also taken into account.

Therefore, a situation where a Ukrainian citizen has been living abroad for several years, works there, pays taxes there, and lives with his wife and children abroad requires a separate assessment. In such a case, there may be grounds to consider that the center of his personal and economic interests is now located in another country.

This status has direct implications for the taxation of real estate transactions. For example, if a non-resident receives real estate in Ukraine as a gift from a resident—even if they are close relatives—different tax rules apply: the State Tax Service notes that such a gift is subject to personal income tax at a rate of 18% and a military levy of 5%.

People who have been living outside Ukraine for a long time but plan to conduct a real estate transaction here should be especially cautious. The mere fact of arriving in Ukraine to sign a contract does not automatically confer resident status. If there are any doubts regarding status, it is best to contact the tax authority for an individual tax consultation before proceeding with the transaction.

How can you sell real estate in Ukraine if the owner lives abroad?

If the property owner resides permanently abroad, they do not necessarily have to travel to Ukraine to sell their home. The owner can issue a power of attorney to a representative in Ukraine. Depending on the country where the owner is located and the international treaties in effect between that country and Ukraine, the power of attorney may require apostille certification or translation. Another option is to have the power of attorney drawn up at a Ukrainian consulate.

Once drawn up, the power of attorney is sent to Ukraine. The representative can act on behalf of the owner, including signing the purchase and sale agreement and taking the necessary steps to finalize the transaction. Under martial law, such transactions have already become common practice.

A separate issue is receiving the proceeds from the sale. Additional banking restrictions and technical difficulties may arise here, so it is best to discuss the method of payment with the bank in advance.

How is the sale of inherited real estate taxed?

If a person has inherited real estate and later decides to sell it, the Tax Code provides a separate tax exemption for such property. Specifically, the rule taxing the third and each subsequent sale of real estate at an 18% rate does not apply to inherited property.

How do you determine the order of real estate sales within a year?

If a person sells several properties within a year, it is not enough to simply count them by the number of transactions. First, you need to determine which category each property falls into: how and when it was acquired, how long it was owned, and whether it was inherited or received as a gift.

For example, a person first sells an apartment that they owned for less than three years and is subject to taxation, and then an apartment they owned for more than three years. The rules applicable to real estate owned for more than three years apply to the second property.

Inherited real estate is subject to separate tax rules, and the correct sequence of transactions can allow you to take advantage of the rules provided by law and avoid paying unnecessary taxes. Therefore, the order of sales should be determined before the transactions are concluded.

Let’s examine a practical example. Over the course of a year, a client sold three properties that he had owned for more than three years. A zero tax rate was applied to the first sale, and he paid a 5% tax on the second property. For the third sale, the client prepared documents in advance confirming the costs incurred in acquiring the property. As a result, the 18% tax was calculated not on the total value of the sold property, but on the difference between the proceeds from the sale and the documented acquisition costs.

Are military personnel entitled to tax breaks when selling real estate?

There are no specific tax breaks for military personnel when it comes to real estate transactions. However, there are certain government programs available to military personnel through which they can receive housing or financial assistance to purchase it.

Does a person always know that they are entitled to a tax benefit?

When finalizing a transaction, the notary determines the tax treatment based on the documents provided and the circumstances of the specific transaction. However, a person may not be aware that, in their situation, the conditions exist for applying a different tax regime or reducing the tax burden. Therefore, if there are doubts about how exactly a transaction should be taxed, it is advisable to consult a lawyer who is well-versed in tax law in advance, provide them with all the documents, and determine whether there are grounds for applying a tax exemption.