Property tax deduction for building a house

In what cases can you get a deduction when building a house?

You can take advantage of the property deduction for housing construction if you:

1. Built a residential building

According to the law, a tax deduction is provided for the construction of a residential building with the right of citizens to register in it. If you have built a residential building without the right to register in it, you cannot count on a deduction (Letter of the Ministry of Finance of Russia dated May 3, 2017 N 03-04-05/27085).

Example: Ivanov I.I. purchased a plot for individual housing construction (IHC), built a residential building on it and received an extract from the Unified State Register of Real Estate. Ivanov can take advantage of the right to receive a property deduction for the construction of a house.

Example: Sidorov S.S. purchased a summer cottage and built a cottage on it, registering it as a residential building without the right to register in it. Sidorov S.S. will not be able to take advantage of the property deduction.

2. We purchased an unfinished residential building and completed it

In this case, the house you purchased must be designated in the purchase and sale agreement as an object of unfinished construction. Otherwise, you will be able to receive a deduction only for the costs of purchasing a house, but not for construction costs.

Example: Ivanov A.A. purchased a one-story residential building under a purchase and sale agreement. After the purchase, Ivanov reconstructed the house, adding a second floor. Ivanov will be able to receive a property deduction only in the amount of expenses for purchasing a house, and expenses for reconstructing the house will not be included in the deduction.

Example: Sergeev S.A. purchased under a purchase and sale agreement an unfinished construction project - an unfinished two-story cottage. After the purchase, Sergeev completed the cottage and registered ownership of it. Sergeev will be able to receive a deduction for both the costs of purchasing and completing and finishing the cottage.

What expenses may be included?

According to the law, not all expenses can be taken into account when refunding taxes. What is included in the deduction:

acquisition of land for construction;
purchase of a residential building or unfinished construction project;
fee for design and estimate documentation;
connection to water supply, sewerage, gas supply, electricity;
materials purchased for construction or repairs;
construction and finishing works of housing.

No other costs will be reimbursed. In addition, all of them must be confirmed by official documents, certified signatures, as well as seals of the parties. It is important to save contracts, cash receipts, certificates of work performed, and invoices. Based on them, the tax inspector will calculate the amount to be reimbursed.

Example

A plot of land with a non-residential building was purchased. The owner built and registered a residential building, and then decided to build a swimming pool in the yard. When submitting documents for deduction, he will be reimbursed for the costs of purchasing a plot, building a house, and finishing. Costs for the pool, even if documented, will not be considered.

What expenses can be included in the deduction when building a house?

The list of expenses that you can include in the tax deduction for housing construction is specified in Art. 220 of the Tax Code of the Russian Federation. These include:

expenses for the acquisition of land for construction;
expenses for the purchase of an unfinished residential building;
expenses for the purchase of construction and finishing materials;
expenses related to construction and finishing works or services;
costs for drawing up design estimates, as well as costs for connecting to utility networks and communications.

It is important to note that in order to receive a deduction, you need to document all expenses , that is, have on hand all the necessary receipts, checks, receipts and (or) other payment documents.

General concepts

The right to receive a tax deduction (TD) is regulated by the main regulatory legal act - the Tax Code of the Russian Federation (hereinafter referred to as the Tax Code of the Russian Federation) and other by-laws (Government Decrees, Presidential Decrees, regulations of local governments and letters from the Ministry of Finance).

In subparagraphs 3 and 4 of paragraph 1 of Art. 220 of the Tax Code of the Russian Federation provides for a property tax in the amount of expenses actually incurred by the taxpayer for the new construction of a residential building on the territory of Russia. Expenses can be either from your own or from borrowed funds, actually aimed at building a house.

Important! You cannot receive a tax deduction for the construction of a private house using maternity capital or another government support program!

This deduction provides for the right of citizens to reduce the tax burden or to return part of the funds paid to the state budget. This means that if you built a house, you can reduce the amount of tax or return a certain part of your own or loan money spent on building housing.

The following construction expenses are considered for personal income tax refund:

purchase of finishing and building materials;
development of documentation (design and estimate);
remuneration of workers (construction, completion, finishing, repair);
costs of connecting to electricity, gas, water supply and sewerage;
expenses for the acquisition of land for individual housing construction;
expenses for the purchase of a country house or a share of unfinished construction.

This list of expenses is exhaustive and is contained in paragraphs. 3 p. 3 art. 220 Tax Code of the Russian Federation.

Only tax residents of the Russian Federation have the right to receive compensation, i.e. citizens who reside in Russia for more than 183 consecutive days and pay income tax.

Persons who:

are the owners of the land and the built house;
are the owner's spouse;
are the parent/guardian/trustee of the owner.

Thus, if a citizen belongs to one of the above points, but is not a tax resident (and vice versa), then he cannot count on receiving a refund.

According to the provisions of Art. 220 of the Tax Code of the Russian Federation, each citizen can receive compensation only once. In this case, you can count on the main deduction and the mortgage interest deduction. The law also provides for the right to receive a refund in full by both spouses and to receive a deduction in a shared ratio.

What construction costs cannot be included in the deduction?

You will not be able to receive a deduction for expenses for:

redevelopment or reconstruction of an already built house;
reconstruction of an already built house (a floor or extension was added);
installation of plumbing, shower, gas or other equipment;
construction of additional buildings or structures on the site (for example, a garage, fence, bathhouse, barn, etc.)

Example: Sidorov V.V. built a residential building, a brick garage and a bathhouse on his site. Sidorov can only include in the tax deduction the costs of building and finishing the house.

Who is eligible for the tax deduction and what expenses does it apply to?

According to Art. No. 220 of the Tax Code of the Russian Federation, return of spent funds is possible only after registration of ownership of the house, and comes into force at the end of the year.

You can save on income tax by:

When purchasing a building plot;
In case of acquisition of “unfinished”;
Purchase of construction materials;
Payment for services of builders and contractors;
Costs of planning, design documentation and estimates for construction and installation work.

When calculating the deduction, expenses for:

Redevelopment or reconstruction of a built house;
For installation of pipes and plumbing;
Construction of auxiliary premises - outbuildings, garage, bathhouse, barn, etc.

Documents for registration of deduction:

A declaration completed by the taxpayer in form 3-NDFL;
Certificate of registration of property rights (original and copy);
Copies of all papers and receipts confirming the costs incurred for the construction of the house;
Application in writing to receive a refund of the funds paid;
Documents confirming the fact of tax payment;
Original and copy of identification documents;
If we are talking about a mortgage loan, attach a copy of the loan agreement and receipts for payment of payments and interest.

When can I get a deduction?

The right to a deduction during the construction of a house arises only after registration of ownership of a constructed residential building , since according to paragraph 6, paragraph 3, Article 220 of the Tax Code of the Russian Federation, the obligatory document for obtaining a deduction is an extract from the Unified State Register of Real Estate (certificate of state registration of the right to a residential building) .

At the same time, you will be able to apply for a deduction to the tax authority only at the end of the year in which you became entitled to it. So, if you received an extract from the Unified State Register of Rights (certificate of registration of rights) for a residential building in 2022, then you can apply for the deduction in 2022.

Example: Ivanov I.I. began construction of a residential building in 2016. In 2022, Ivanov completed the construction of the house, in 2022 he registered ownership of the completed residential building and received an extract from the Unified State Register of Real Estate. In 2022, Ivanov can apply to the tax authority and receive a property deduction for the construction of a house.

At the same time, it is not necessary to submit documents for deductions for the next year after registering the house. The right to a property deduction has no time limit, however, tax refund is possible only for the last three years preceding the year of filing documents for the deduction.

You can find out more about this information in the article: “When and for what years to submit documents to receive a property deduction.”

Example: Ivanov S.A. built a residential building in 2022 and registered ownership of it. In 2022 and 2019, Ivanov did not have official employment. Officially got a job in 2022.

Thus, Ivanov has the right to begin using the construction deduction in 2022 and get a refund of the income tax he paid in 2022. If Ivanov does not completely exhaust the deduction, then he will be able to continue to use it in subsequent years: in 2022, return the tax for 2022, in 2023 - for 2022, etc.

If you have received an extract from the Unified State Register of Rights (certificate of registration of title) for a residential building, but do not want to wait until the end of the year, then you can take advantage of the opportunity to receive a tax deduction through your employer. Read more about this in the article “Obtaining a property tax deduction when purchasing an apartment/house through an employer.”

Conditions for income tax refund

Since the state returns taxes already paid, we can immediately say that not everyone is entitled to a tax deduction for the construction of a private house. Only the following categories of citizens can apply for a personal income tax refund during the construction of a private house:

Residents of the Russian Federation who are officially employed and also regularly pay taxes on their income to the state treasury.

You need to know this! Not everyone in our country is able to separate the concepts of “resident” and “non-resident”. According to the law, a resident is a person permanently residing on the territory of the Russian Federation. But there are some peculiarities. For example, a citizen who has a residence permit in another country or dual citizenship and lives in the Russian Federation for less than 183 days a year is a non-resident in one specific tax period. Citizens of another country who have a residence permit in Russia and live there for more than half of the tax period can also be recognized as residents.

Pensioners who work on an official basis, that is, paying personal income tax on their salary or any other profit.

This is interesting!
When calculating the refund amount for both pensioners and ordinary citizens, only the last three tax periods are taken into account. Previous tax periods are not taken into account, that is, they are cancelled. We can conclude that in order to receive a tax deduction for building a house, you must have resident status. And also regularly pay tax on profits.

Additional terms

But everything is not so simple, it is also necessary that the citizen:

I have not previously received a tax deduction when purchasing a home in full. The full amount under the new legislation in force in 2017 is 260 thousand rubles from two million of the purchase price. More than this amount can only be returned in the case of mortgage lending.
The apartment, house or cottage must be purchased/built at the expense of the applicant, and not at the expense of other persons or organizations. In addition, the house should not be built using housing subsidies received in cash or using government assistance programs for various categories of citizens.
The constructed house must be registered in the name of the applicant or his (her) spouse. If a house is built during marriage, both spouses can receive deductions.
The applicant is an adult.
The applicant is not an individual entrepreneur who operates under simplified tax schemes.

What can you get a tax deduction for when building a house?

So, the conditions for obtaining a property deduction when building a house are clear. Now it’s worth looking into the question of whether it is possible to get a tax deduction during construction and what exactly a tax refund is provided for.

Personal income tax refunds are possible on:

Construction of a private house or renovation of an apartment.
Purchasing an apartment or house, as well as shares in them.

That is, a personal income tax refund for the construction of a private house is still possible. But what can you get a refund for?

A 13 percent tax refund for the construction of a private house is provided for:

Payment for the construction of the building, as well as for the interior and exterior decoration of the building.
Purchasing materials that are necessary for the work.
Payment for communications - gas, electricity, sewerage.
Development of a house project by relevant organizations and preparation of documentation.
Payment of interest rates on the loan if the house was purchased using preferential mortgage lending.
On-lending and repayment of interest on housing loans.

It is important!
If a house is purchased in a condition that is not suitable for housing, that is, unfinished, it will be possible to return 13 percent of the tax only if the relevant information is available in the documentation. Purchasing land for building a house is another important point. Not many people know that you can also return 13 percent of the tax base for it. To do this, you must submit the appropriate documents to the tax authorities at your place of residence.

You can learn more about this from the video:

You need to know this! The state will not return money for home improvement, that is, for the purchase of furniture, plumbing, flooring, fittings, and so on. Refunds are only possible for construction or purchase of real estate.

List of documents for obtaining a deduction

To apply for a property tax deduction for housing construction, you will need:

declaration 3-NDFL;
extract from the Unified State Register of Real Estate for a residential building;
copies of documents confirming the costs of building a house. In most cases, these documents will be:
for the services of organizations - a copy of the contract with the construction company, copies of payment orders (or for cash payments - copies of cash receipt orders, receipts);
for the purchase of materials - copies of receipts (sales receipts);
tax refund application;
documents confirming the tax paid (certificate 2-NDFL);
a copy of an identity document;

If you receive a deduction for interest on a construction loan, you must also attach:

loan agreement;
certificate of deducted interest on the loan.

Documents for registration of a deduction for a house

List of documents that the owner must provide to obtain a tax deduction:

Passport.
Extracts from the Unified State Register for land and buildings.
Sales and purchase agreements for houses and land.
Payment documents confirming the purchase.
List of construction costs.
Documents confirming the work performed: acts, contract agreements.
Documents confirming payment for work and materials: checks, statements, receipts, receipts.

In addition, you will need the originals, which you should contact the tax inspector with:

Certificate 2-NDFL from the place of work. It is important that it be compiled for the year the deduction was issued.
Application for personal income tax refund with mandatory indication of the bank account for transferring money.
Declaration 3-NDFL.

It is necessary to provide an agreement with the bank on the provision of a cash loan and a certificate of interest paid if the transaction was carried out using borrowed funds.

You can submit a 3-NDFL declaration the following year, as well as a year or two after registration, but you need to take into account that the refund will be made for the last three years. Let's look at this situation with examples:

Example #1

The land plot was purchased in 2016. In 2022, the house was built and registered as residential in Rosreestr. You can submit your declaration no earlier than 2022, in any month.

Example No. 2

The extract from Rosreestr was received in 2014. We contacted the tax office only in 2022. The tax will be refunded for 2015, 2016 and 2022.

Deduction amount

The amount of deduction for new construction or completion of an individual residential building is determined according to the same principle as in other types of property deduction. (see Amount of tax deduction).

You can return up to 13% of the total amount of expenses for construction and finishing of housing, while the maximum amount for deduction should not exceed 2 million rubles (i.e. you can return a maximum of 2 million rubles x 13% = 260 thousand rubles) .

For each year, you can return no more than you transferred to the income tax budget, while the remainder of the deduction is transferred to the next year until the deduction amount is received in full.

Example: In 2022 Sergeev A.A. built a residential building. The costs of building and finishing the house amounted to a total of 10 million rubles. Sergeev has the right to receive a property deduction in the amount of construction costs, but not more than 2 million rubles, since this is the maximum deduction amount.

If Sergeev is officially married, then his wife will also be able to claim a deduction in the amount of 2 million rubles (for more details, see the article “Features of tax deductions when purchasing housing by spouses”).

In the case of housing construction with a mortgage before January 1, 2014, income tax on expenses for paying mortgage interest is refunded in full without restrictions.

If a mortgage loan for construction was issued after January 1, 2014, then the interest deduction is limited to 3 million rubles. That is, you can return a maximum of 3 million rubles from mortgage interest. x 13% = 390 thousand rubles.

How much money will the state return?

The legislation establishes the maximum total amount of property deduction of 2 million rubles. This includes the cost of acquiring land or renovating or constructing a residential structure. The state will reimburse 13% of this amount, which will amount to 260 thousand rubles.

The amount to be paid cannot exceed actual expenses supported by documents. If the costs amounted to 1,400,000 rubles, then the refund will be calculated from this amount. Accordingly, 182,000 rubles will be reimbursed.

The amount of payments is calculated based on the personal income tax paid for the year and cannot exceed it. If it was not possible to repay all the money in the first year, then the debt is automatically transferred to the next, until full repayment.

Example

A plot of land for construction was acquired. Later a house was built. Expenses amounted to 7 million rubles. Since the maximum amount for deduction established by the state should not exceed 2 million, then 260 thousand rubles are subject to return.

But, if the owner has an official spouse, then he is also entitled to a property deduction. Each will receive 260 thousand rubles, and the total return from the state will be 520 thousand rubles.

Example

In 2016, the couple built and registered a house. Expenses amounted to 4.6 million rubles. Both spouses will be able to receive a tax deduction for housing. They will receive 260 thousand rubles each.

By default, the deduction is distributed equally between spouses. But this proportion can be adjusted based on an application, which is submitted once and cannot be changed.

Example

In 2016, the couple built a house for 2.5 million rubles. In 2022, a declaration for deduction was submitted. The spouse’s salary is higher, so it was decided to distribute the deduction in the following proportion: 1.9 million rubles will go to the spouse, the remaining 600 thousand to the wife. The amount to be refunded per family will be 325 thousand rubles. At the same time, the unused deduction of 1.4 million rubles by the spouse can be used in the next transaction.

When purchasing or constructing housing using borrowed funds, in addition to the main property deduction, you can return interest on the loan. The state has set a maximum deduction threshold of 3 million rubles. This can be not only a mortgage loan, but also any targeted loan aimed at purchasing a residential building. According to the Letter of the Ministry of Finance dated 04/08/2016 No. 03-04-05/20053, the purpose of the use of funds should be indicated in the loan agreement. Let's look at how this happens in practice using examples:

Example

In 2015, a loan of 9 million rubles was issued. In 2022, a residential building was built and registered. From 2015 to 2022, the bank paid interest on the loan in the amount of 4.9 million rubles. The maximum amount payable is 3 million rubles, so when the declaration was filed in 2022, the tax inspector made the following calculation: 3,000,000 × 13% = 390,000 rubles. The main property deduction of 260 thousand rubles was also paid.

How will the calculation occur if the loan agreement does not indicate the intended use of funds:

Example

In 2015, a residential building was completed and registered. 3 million rubles were spent on construction, of which 1.8 million were borrowed under a consumer loan agreement. Since the loan is not intended for the purchase of housing, you can only return a standard property deduction in the amount of 13% of 2 million rubles, which will amount to 260 thousand rubles.

When applying for reimbursement of expenses with the participation of borrowed funds, the official spouse of the owner is also entitled to a property deduction. Thus, the payment to the family could be 780 thousand rubles instead of 390 thousand rubles.

Until January 1, 2014, the maximum threshold was not established, so interest on the loan was reimbursed without any limit on the amount.

Example

In 2010, a mortgage loan of 12.9 million rubles was taken out from a bank for housing construction. In 2012, construction was completed, the residential building was registered in Rosreestr, and a document confirming ownership was received. In 2022, documents were submitted for property deduction. At this time, the bank had paid 4.5 million rubles in interest on the loan. Since the house was registered before 01/01/2014, you can receive a deduction from the entire amount without restrictions:

4,500,000 × 13% = 585,000 rubles

Deduction for the cost of paying interest on loans (mortgages) for construction

If you have taken out a targeted loan for the construction of a residential building (this must be stated in the loan agreement), then you have the right to receive a deduction for the loan interest paid.

Example: Petrov A.V. took out a mortgage loan for the construction of a residential building. Petrov has the right to claim a deduction for both construction and mortgage interest costs.

You can read more about the deduction for loan interest in the section “Deduction for mortgage interest.”