How to get a tax deduction when building a house?

What the law says

The main provisions related to obtaining a property tax deduction are regulated by the following regulations:

Article 220 of the Tax Code of Russia - this establishes the possibility of obtaining such a deduction for certain categories of citizens;
Federal Law No. 212-FZ - determines the procedure for partial refund of funds;
Letter of the Ministry of Finance of the Russian Federation dated April 21, 2008 No. 03-04-05-01/123 regulates the issue of receiving a deduction by the second spouse.

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Article 220 of the Tax Code of the Russian Federation “Property tax deductions”

Federal Law of July 23, 2013 No. 212-FZ “On Amendments to Article 220 of Part Two of the Tax Code of the Russian Federation”

What is a tax deduction?

This definition means the possibility of a partial return of money spent on the construction or purchase of housing. This right applies only to citizens of the Russian Federation and only after registration of the right to the plot (clauses 1, 2, 6, clause 3, clauses 4, 5 of Article 220 of the Tax Code of the Russian Federation). In addition, the amount of the deduction depends on the actual expenses incurred by the taxpayer, but cannot exceed the norms established at the legislative level.

Who does it apply to?

As mentioned above, only a citizen of the Russian Federation who has incurred monetary expenses for:

Construction of a country house;
Acquisition of private home ownership;
Purchase of living space, including with the use of borrowed funds (mortgage lending).

A prerequisite for a tax deduction is that the recipient must belong to the category of taxpayers, and appropriate deductions are made in respect of him. In particular, here we are talking about paying income tax in the amount of 13%.

Important! Without a taxable base, applying a property deduction becomes technically impossible.

Private households and tax deduction

There are two options here:

The owner built a residential building. It should be noted here that the right to take advantage of privileges is reserved only for owners of buildings suitable for habitation and registration. For example, if you have built a small country house, which according to its technical characteristics cannot be considered a residential building, the deduction is not provided (Letter of the Ministry of Finance of Russia dated 02/08/2018 N 03-04-07/7700);
Completion of construction. A common situation: a person acquires unfinished construction and completes the construction on his own. However, an important nuance must be taken into account here: such real estate must appear in the contract precisely as an object of unfinished construction.

Terms of service

The first thing to remember is that the provision of a tax deduction is allowed only on an application basis. In addition to the application, 4 conditions must be met:

Russian citizenship;
The official source of income on which tax is paid;
Documentary evidence: title documentation for the development site, receipts and receipts;
The completed house is suitable for registration and housing.

Allowable Costs

This includes the following expense items (clause 3, clause 3, article 220 of the Tax Code of the Russian Federation):

Purchase of land for individual housing development;
Acquisition of an unfinished construction project;
Ordering design and technical documentation;
Expenses for construction and finishing materials (In this case, these expenses can be included in the deduction after the state registration of ownership of the house (Letter of the Ministry of Finance of Russia dated December 6, 2018 No. 03-04-07/88679), as well as expenses for work and services for house construction;
Supply and connection of utilities.

What is excluded

It is quite natural that not all construction costs are subject to partial reimbursement. The tax benefit does not apply, for example, to the following expenses:

Redevelopment or reconstruction of a property, even if this work is approved by the supervisory authorities;
Construction of additional floors or extensions suitable for habitation;
Installation of plumbing and gas equipment;
Construction of outbuildings on a personal plot: sheds, garages, chicken coops, bathhouses, etc.

In general terms, the deduction is only relevant for residential buildings and work necessary to put the building into operation. For example, you can get a tax deduction for connecting water and gas pipes to your home. There is no longer any cost for connecting a shower cabin or gas water heater.

In what cases can you get a deduction?

A tax deduction is provided to Russian citizens for the construction of a house located on the territory of the Russian Federation. The status of the property is confirmed by BTI employees after inspecting the property. Persons who pay income tax in the amount of 13% are entitled to receive compensation.

ATTENTION! Those who bought a plot of land from relatives to build housing are not entitled to such a benefit.

Home construction

In accordance with the Tax Code of the Russian Federation, a deduction is provided for the construction of a private building with the possibility of registration in it. If the property is not registered in the cadastral register with Rosreestr, it is impossible to receive compensation.

Owners of multi-family homes are also not eligible for this benefit.

Buying an unfinished house

Owners who purchased a building during the construction stage and completed the construction of the house themselves can count on a refund of part of the money.

IMPORTANT! In order to receive compensation when purchasing an unfinished property, when completing the transaction, the contract must reflect that the building is not completed.

When can I use this privilege?

You can contact the territorial division of the Federal Tax Service about this after ownership of the house has been registered.
In particular, a tax deduction becomes possible after the state registration procedure, when the house is entered into the Unified State Register of Real Estate and the homeowner is issued a corresponding certificate. It should be noted that you need to apply for a tax deduction the next year after ownership rights arise. For example, if you built a house and went through the state registration procedure in 2019, you can apply for a property deduction in 2020.

Collecting information

Certificate of state registration of ownership: extract from the state register;
Certificate of income filled out in accordance with the established form 2-NDFL;
Declaration filled out in form 3-NDFL;
Payment documents certifying expenses incurred: receipts for the purchase of building materials, contracts with contractors, etc.;
Russian passport;
Application for tax benefits.

If the construction was carried out using borrowed funds, you will need a copy of the agreement with the financial institution and a certificate certifying the amount of interest paid.

Refund of personal income tax for the construction of a private house

Many citizens know that when buying a home, they can receive partial compensation from the state in the form of a refund of income tax paid.

But you can take advantage of this benefit not only when buying, but also when building a house. How to reimburse expenses incurred during the construction of a home?

Conditions

You need to think about how to return the tax deduction when building a house in advance of construction. The final amount of the deduction is directly dependent on the amount of money spent.

To do this, it is necessary to document the costs. The maximum amount of compensation from the state is thirteen percent of two million rubles, that is, two hundred and sixty thousand.

A tax deduction is a type of state compensation provided for by tax legislation. The regulation of such compensation is provided for in Article 220 of the Tax Code of the Russian Federation.

Its amount varies depending on the amount of funds spent. But at the same time, the volume of the basic basis for calculation cannot exceed two million rubles. A tax resident of the Russian Federation has the right to apply for a tax deduction when constructing a home.

This can also be a person who does not have Russian citizenship, but has resided on Russian territory for at least one hundred and eighty-three days over the previous twelve months. The main condition is the regular payment of income tax by the applicant.

As a rule, the employer pays income taxes. If the employment is not officially registered and the employee receives a salary without any documentary support, then it will not be possible to issue a tax deduction.

Also, minor citizens, non-working pensioners, students, entrepreneurs and the unemployed are not entitled to a deduction.

A citizen who used various subsidized funds for construction is also not entitled to receive a tax refund. In this case, citizenship and collected papers on expenses incurred do not matter.

Refunds of personal income tax are excluded when using maternity capital for construction. The same applies to construction projects with financial assistance from the employer.

If we outline the main conditions for the return of personal income tax during construction, they are as follows:

the citizen must be officially employed, that is, be a taxpayer of the Russian Federation;
construction was carried out only at one’s own expense without the use of government subsidies or employer assistance;
expenses must be documented.

It is important that you can only issue a tax refund once. There is no tax deduction for re-construction.

There are also some nuances of tax refund when building a house. For example, what if the house was built with money from a loan? In this case, Article 220, clause 1, clause 2 of the Tax Code of the Russian Federation says that tax refund is possible only when applying for a targeted loan.

That is, if the loan was taken specifically for construction. When applying for a consumer loan, no compensation is due.

And if you purchased an unfinished house, how to get reimbursement of expenses? In this case, deduction is possible only if the purchase agreement states that an unfinished house is being sold.

If a house is built on land purchased specifically for this purpose, then you can apply for a deduction only after the citizen has acquired ownership of the land and house.

You can find out the period for returning personal income tax when purchasing an apartment in this article.

To apply for a construction tax refund, you must contact the tax office at your place of residence. When applying, you will need to submit the necessary documents.

The next step is to fill out the declaration. In addition to the funds spent on construction, it is necessary to indicate all available income, for example:

sale of property;
provision of one-time services;
receiving payment for rent and the like.

Next, an application is drawn up on the form received from the Federal Tax Service. It contains the following information :

individual data of the applicant;
an article of the Tax Code defining the right to receive a tax deduction for construction;
amount to be refunded;
bank account to which funds should be transferred;
signature and date.

You can also get your income tax back through your employer. In this case, a similar appeal to the tax authorities will be required. After checking the information and if the decision is positive, the Federal Tax Service issues a notification.

It should be submitted to the accounting department at the place of work. Throughout the year, wages will be paid without deduction of thirteen percent.

The peculiarity of compensation is that in a year you can only receive an amount equal to the amount of income paid. That is, if a taxpayer paid, for example, seventy thousand rubles in personal income tax during the year, then this is exactly the amount he will receive.

The unpaid balance of the tax deduction is carried forward to the next year. You need to repeat the entire procedure of applying to the Federal Tax Service, resubmit documents and apply for compensation for the current year.

What documents are needed

The most important thing when applying for a personal income tax refund after building a house is to provide all the necessary documents.

These include:

purchase and sale agreement of a land plot for individual housing construction;
financial documentation confirming the purchase of construction materials (sales receipts, receipts, bank statements, receipts, acceptance certificates);
certificates of work performed when involving construction companies (for connecting communications, completing or constructing a house, drawing up an estimate or project).

All other expenses, for example, the purchase of construction tools or repayment of bank commissions, are not taken into account when applying for a tax deduction.

In addition to documents evidencing expenses incurred, you will need to provide:

declaration filled out in form 3-NDFL;
a certificate from the place of work about income in form 2-NDFL;
application for a tax deduction;
application for compensation for overpaid income tax;
Bank account details or a copy of your passbook.

In order to correctly fill out the 3-NDFL tax return, you will also need to prepare certain documents, in particular:

certificates from all places of work for the years indicated in the declaration, issued by the employer’s accounting service in form 2-NDFL;
a document confirming the ownership of housing;
act of acceptance and transfer of housing, if there is participation in shared construction;
agreement of purchase and sale, assignment of claim or investment;
payment documents with mandatory indication of full name. (receipt cash order, seller's receipt of funds, bank payment);
taxpayer's passport details, permanent registration address, postal code;
bank account details.

Compensation amount

Strict financial limits apply for tax deductions. In particular, only the tax for individuals is subject to reimbursement. Currently, this is 13% of the amount of earnings or other profits. At the same time, the law sets an upper limit on the amount from which expenses incurred can be reimbursed.

Available maximum

If we turn to the provisions of the Tax Code, the nominal amount of the deduction is determined at 2,000,000 rubles.
We remind you that you can return 13% of the set value. In total, you can count on no more than 260,000 rubles as a tax deduction. If the house was built using borrowed funds, and the mortgage agreement was concluded after January 1, 2014, it is possible to partially reimburse the interest paid on the loan. However, the amount of such expenses is also limited and amounts to 3,000,000. The general principle applies here: only 13% of the maximum amount is subject to reimbursement. As a result, you can receive no more than 390,000 rubles for the interest overpayment.

Important! The tax deduction cannot exceed the amount of tax payments to the state budget. Therefore, such subsidies can be carried forward to the next reporting period. This rule applies until the entire due amount is received by the taxpayer (Article 216, paragraphs 9, 11, Article 220 of the Tax Code of the Russian Federation; paragraphs 1 - 3, Article 2 of the Law of July 23, 2013 No. 212 -FZ).

Reasoned refusal

The deduction is not provided in the following cases:

The costs of construction (purchase) were not borne by the applicant: for example, a person was provided with financial assistance for the construction of a house;
The application is not submitted by the owner of the property;
The house was built using maternity capital or other types of state funds;
The purchase and sale agreement was concluded between close relatives;
The right to receive a property deduction was exercised earlier;
The cash payout limit has been reached;
The building is not suitable for living.

In addition, refusal is possible if the documents are filled out incorrectly. However, in this case, it is possible to resubmit the application after eliminating all inaccuracies.

Who can count on a deduction

In fact, this deduction represents a refund of personal income tax (personal income tax). Every citizen who has official income pays part of it to the state in the form of this tax.

Consequently, any personal income tax payer can theoretically count on a property deduction when building a house.

Other persons for whom contributions to the budget were not received are not entitled to such compensation.

You can apply directly for reimbursement:

the owner of the site where construction was carried out;
the other half (spouse) of the owner of the plot;
parents (persons replacing them) for children (minors).

It is important that the costs are borne by the specified persons themselves. If funds from employers or maternity capital were used for construction, then there will be no personal income tax refund. It is also useless to claim personal income tax compensation for transactions with interested parties.