Seller write property gains tax as part of apartment price in contract

Hi,

We are in the process of finalizing the purchase of an apartment. In the contract draft we received, the seller has included the property gain tax as part of the apartment price (price which was not previously agreed upon, without mention of the property gain tax being part of it). From my understanding, it is the seller who covers the property gain tax, and this arrangement means that when we sell the apartment (e.g., in 10 years), we would be responsible for paying property gain tax on the previous owner's property gain tax.

I was wondering if this was common practice and if anyone already had experience with such an arrangement .

Seller can sell it for any price he wishes!

Tom

so maybe you bought a house for 1000k and you get a schedule of payments which says something like:

10k notary fees

200k tax on gains

290k pay to seller

500k pay to existing lending bank

then it is just splitting the purchase price to the different people who need to receive the money.

if so that is normal and protects you as you ensure taxes on the gains are paid. otherwise if you pay the seller directly and he skips on paying tax, the taxman can come to you as the owner of the house to pay up! when i bought my house i got a confirmation from the tax authorities of the tax due and paid this directly to them out of the purchase price so i could make sure that there was no secondary tax liability due to me.

Doesn't make any sense. Are you saying they're raising the sale price to cover the capital gains tax? That just results in them getting a bigger tax bill. Or are you saying they are asking you to give them a separate payment equal to the amount they receive as their tax bill (which, if possible, would be taxed as income)

Thanks for the answers.

@Phil_MCR, this is exactly something like that.

Continuing on your example, let's imagine that a few years later you sell the house for 1500k with a property gains tax of 30%. To make things simple, let's simply assume that the new property gains tax (i.e., the property tax when you sell the house) will be (new_house_price - initial_house_price) * 30%.

The new house price is 1500k. But, what is the initial house price? 10k+200k+290k+500k=1000k, 200k+290k+500k=900k, or 290k+500k=790k?

In other words, are the notary fees and initial tax gains part of the initial house price when computing the next property gains tax?

1000k

Tom

Awesome. Thanks for the clarification .

yes. your purchase price will be the basis. 1000k. in reality, you probably might have made capital improvements over the ownership period which would increase this.

SZ tax office have a calculator for the capital gains that includes a calculation of the tax if the buyer is paying the gains. Presumably to stop some infinite iteration of the seller increasing the price to cover his gain, being taxed on that so increasing the price and being taxed on that ad infinitum

But also worth noting that when you calculate your capital gains on sale you can deduct your notary and selling costs among other things.