A public decision has been issued regarding the taxation of excess income received by an individual from the sale of an apartment or house.
On May 14, 2026, a new Public Decision No. 143 of the Ministry of Finance of Georgia was published and entered into force immediately upon publication, clarifying the issues of income tax taxation of income received by an individual as a result of the supply of real estate. The decision aims to clarify ambiguous issues and establish a unified practice on such issues as:
– 5% and 20% income tax rates on excess income from the supply of real estate
Use.
– Possibility of exemption from income tax upon the supply of real estate after 2 years, in case of rental of real estate or other use of it in EC activities prior to such supply.
– Calculation of excess revenue (whether or not costs directly related to the creation, completion or improvement of the asset are taken into account).
– The rule for calculating the 2-year period for the purposes of the benefit when real estate is supplied in different forms (e.g., when supplied following a merger or division).
General rules for taxation and exemption from income tax of excess income from real estate
In general, according to tax legislation, the income tax rate for individuals is 20%, however, the excess income received by an individual upon the delivery of a residential apartment/house (with land attached to it) is taxed at a 5% income tax rate. Based on the above, an individual:
- The sale of an apartment or house is taxed at an additional 5%.
- The supply of commercial space, vacant land and/or other types of assets is subject to a 20% rate.
Notwithstanding the above, excess income may be fully exempt from income tax in the following cases:
- In the case of selling an apartment/house with a surplus, delivery within 2 years of purchase is sufficient for exemption.
- In the case of the supply of other types of real estate, exemption requires both delivery after 2 years and the absence of the fact of using the asset for economic activities during the last 2 years prior to the supply.
What is considered a "residential apartment/house" and can be taxed at 5%?
Although the above-mentioned legislative norm existed even before the issuance of the public decision, there were many ambiguities regarding when real estate is considered a residential apartment/house and when – another type of asset, which on the one hand affected the income tax rate (5% or 20%), and on the other hand, the possibility of using the so-called 2-year tax exemption (e.g. in the case of rental).
When determining the type of real estate, the relevant record of the registering authority is important, however, for the final assessment, the actual functional purpose of the property is decisive. Accordingly, Real estate is considered a residential apartment/house if it collectively meets the following criteria:
a) Represents an independent entity – It can be individually identified and is registered in the real estate register. Real estate is considered an independent unit even if it is registered under a single cadastral code and is in co-ownership, if the property object represents a single residential unit by its purpose;
b) Intended for residential use – Real estate, by its status and purpose, is a residential unit. This criterion applies to both completed and under-construction objects, if the object, by its design and contract, is a residential apartment/house. The actual technical condition of the property (including the condition of the frame, incompleteness, temporary unusability or emergency condition) does not in itself exclude its qualification as a residential apartment/house.
A functionally related auxiliary area (including an attic, basement, or other) shall also be considered a constituent part of a residential apartment/house if it provides or improves the conditions for using the apartment/house for residential purposes and is not used for independent non-residential or economic purposes;
c) Provided or can be provided with basic engineering communications – The real estate has or may have access to necessary utilities (electricity, water, sewage, etc.). This criterion is assessed taking into account the location and type of property and does not require the simultaneous presence of all utilities;
d) Does not constitute a functional part of another activity – Real estate is not an integral part of a facility that does not inherently have a residential purpose.
Therefore, the sale of an apartment or house by an individual with a surplus (which fully meets the above-mentioned prerequisites) It will be taxed at a 5% income tax rate, and upon delivery of such property after 2 years, it will be completely exempt from income tax, even if such property has been rented out during the last 2 years.
Important clarification: The temporary use of a residential apartment/house for another purpose (including rental for the purpose of generating income) or the use of a residential apartment/house as the registered legal address of an entrepreneurial company does not in itself change its residential character, if the object, by its technical and functional characteristics, represents a residential unit. Also, regardless of the type of object, the supply of an asset by an entrepreneurial natural person within the framework of entrepreneurial activity is not considered the sale of a residential apartment/house, if such supply is carried out within the framework of systematic and organized activity.
In addition, the delivery of an apartment/house under construction - an apartment/house under construction is considered a residential apartment/house if it represents a residential unit by its design and purpose and the purchaser is transferred all the basic rights necessary for its residential use, regardless of whether the construction of the facility has been completed or whether it has been put into operation.
What is considered "other assets" and can be taxed at 20%?
According to a public decision, the following property is considered to be another type of asset, which indicates that such an asset The surplus sale must be taxed at a 20% income tax rate, and in the case of delivery after 2 years, there will still be no exemption from income tax if the asset was used in business activities during the last 2 years.
According to a public decision, such assets include:
- Provision of space within the hotel infrastructure – A hotel room, as a rule, is part of the hotel infrastructure, is used for temporary accommodation, and functions only within the hotel system, which is why it Not considered a residential apartment, It is considered another asset. It turns out that even in the event of the delivery of such an apartment after 10 years, income tax will still be levied at a rate of 20% if the fact of renting the property during the last 2 years before the sale is established.
- Supply of real estate within the framework of entrepreneurial activity – According to the decision, if a person has previously determined the supply of an apartment or house within the framework of entrepreneurial activity, such property will not be considered an apartment/house and will be taxed in the same manner as non-residential real estate (e.g. commercial space). This implies taxation of such an apartment or house at a 20% rate and exclusion of tax exemption even in the case of supply after 2 years, if the fact of using such property in entrepreneurial activity is confirmed.
- Delivery of rights acquired under a prior agreement – When transferring the right to purchase an apartment obtained only under a prior purchase agreement, the subject of the transfer is the right, not the real estate. Accordingly, according to the public decision, the transaction is not considered a transfer of residential property, which implies its taxation at a rate of 20% (in the absence of a transfer right). It is worth noting that this approach does not apply to the transfer of an apartment/house registered as under construction.
- Supply of other non-residential real estate – E.g. commercial space, warehouse space, etc.
What is considered excess income from the sale of real estate?
According to the issued public decision, the excess income in the case of the above operations is determined The difference between the delivery price of an asset and its purchase price. It is further clarified that when determining the surplus, the purchase price shall include the documented costs directly related to the acquisition, creation, completion or improvement of the asset., which increase the value of the asset. In the case of receiving an asset free of charge, its acquisition price is considered to be the market value of the asset at the time of its receipt.
How is the 2-year holding period determined in specific cases?
Delivery of a self-built residential apartment/house – When transferring a self-built apartment/house, the period of ownership is calculated from the moment it was registered as real estate. For example, if a person built a residential apartment/house himself and sold it soon after, the excess income will be taxed at 5%, and if 2 years have passed since the origin of the property, it will be exempted altogether.
Delivery of a residential apartment/house received in exchange for land – If a natural person received real estate in exchange for land that meets the criteria for a residential apartment/house and subsequently delivered it, the purchase price is considered to be the market value of the land at the time of its transfer. In addition, when selling an apartment/house received in exchange for land, the 2-year period should not be counted from the date of purchase of the land, because the apartment/house is a new asset and its ownership period is counted from the date when ownership of it arose.
In case of inheritance The law allows the new owner to add the period of ownership of the previous owner. In particular, for the purpose of calculating the 2-year period of ownership of the asset, the total period of ownership by the individual and the testator/donor of whom the individual is a first-degree heir is taken into account. Accordingly, it is possible for the first-degree heir to sell the property soon after receiving it and still benefit from the benefit if the testator and the heir, in total, owned it for more than two years.
Asset division or consolidation – The law directly indicates that in the event of the division of an asset registered as a single subject in the registration authority, the 2-year period of ownership of the acquired asset is calculated from the date of ownership of the asset existing before the division. In addition, if two or more assets are combined and one of them was owned for more than two years, and the other for less, each asset is valued independently.