First-time buyer tax credit: when you’re eligible and how to claim a tax refund if you sell and buy a new home

The first-home tax credit is a tax relief scheme provided for under Italian law that allows you to reclaim, in full or in part, the tax paid on the purchase of a propertay when you sell that property and go on to purchase a new first home.

In simple terms, anyone who sells a property purchased under the first-home tax relief scheme and buys a new home within the time limits set by law is entitled to a tax credit equal to the lower of the tax due on the previous purchase and the tax due on the new purchase. This credit can be used to reduce the tax due on the new purchase or to offset other taxes in accordance with the procedures laid down in tax legislation.

Understanding when the first-home tax credit becomes available, how it is calculated and how it can be used is important to avoid missing out on a tax benefit that can have a significant impact on the overall cost of buying or selling a property.

In the following paragraphs, we will therefore look at what the tax credit for the repurchase of a first home is, when it applies, how it is calculated and how it can be used in accordance with the guidelines issued by the Italian Revenue Agency.

What is the first-time buyer tax credit?

The first-time homebuyer tax credit is a tax benefit provided for under Article 7 of Law 448 of 1998. The provision stipulates that anyone who sells a property purchased under the first-time homebuyer scheme and subsequently purchases another property to be used as their primary residence may reclaim the tax paid on the first purchase.

The tax credit therefore applies when a person purchases their first home after selling their previous property.

The aim of the legislation is to ensure that people who move house for family or work reasons do not have to pay all the purchase taxes again without being able to reclaim those already paid on their first purchase.

In this way, the tax system recognises the continuity of the first-home benefit, ensuring that taxpayers do not lose all the tax they have already paid when they replace their main residence.

When is the tax credit for the purchase of a first home available?

The entitlement to the first-home tax credit arises when certain conditions laid down by law are met.

In particular, the credit is due when:

• a person sells a property purchased under the first-time buyer scheme
• proceeds to purchase another property to be used once again as a main residence
• the new property is purchased within one year of the sale of the previous home.

The one-year period following the disposal is the general rule laid down by the legislation. In the past, temporary suspensions of these time limits have been provided for in exceptional circumstances, but the standard rules continue to require that the repurchase take place within twelve months.

If the property is repurchased within this period, the taxpayer retains the right to the tax credit and may reclaim the tax paid on the initial purchase of their first home.

This mechanism applies when a taxpayer purchases a new primary residence, i.e. a property that meets the legal requirements for primary residence tax relief.

It is possible to buy your new first home before selling your previous one

A fairly common scenario is where a taxpayer buys a new first home before selling their previous property.

The law allows this. In this case, the taxpayer may purchase the new home whilst still qualifying for first-time buyer benefits, even if they still own their previous home, provided they sell it within two years of the new purchase.

It is important, however, to distinguish between two different situations.

The first-time buyer scheme can be applied for at the time of the new purchase, and it is already possible to claim the tax credit provided that the sale of the previous property is actually completed in accordance with the law.

Tax credit for a first home and the purchase of a new home

The tax credit applies in the case of the repurchase of a first home, i.e. when a person sells a property purchased under the first-home benefits scheme and buys another property to serve as their main residence.

In the case of a new purchase, the buyer can therefore use the tax credit accrued to reduce the tax due on the deed of sale.

If the property is purchased from a private individual, the main tax is the reduced stamp duty applicable to the purchase of a first home. If, however, the property is purchased from a property developer, the main tax is the reduced rate of VAT.

The tax credit can therefore be used to reduce the tax due on the new purchase or to reclaim part of the tax paid on the previous purchase of a first home.

When the deed of sale is drawn up, the solicitor appointed for the new purchase checks that the conditions for first-time buyer benefits are met and that the buyer is entitled to the tax credit, in addition to verifying the necessary documentation for the property transfer.

How is the first-time buyer’s tax credit calculated?

The calculation of the first-home tax credit follows a specific rule laid down by tax legislation.

The tax credit due is equal to the lower of:

• the registration tax or VAT paid or due on the initial purchase of the first home
• the registration tax or the VAT due on the new purchase.

This means that the credit cannot exceed the tax due on the new purchase.

If the tax paid on the first purchase is higher than that due on the second purchase, the excess cannot be used to further reduce the tax on the new transaction.

To determine the tax credit due, it is therefore necessary to check:

• the taxes paid on the initial purchase of a first home
• the tax due on the new purchase
• the tax treatment of the transaction (registration tax or VAT).

This check enables you to calculate the tax credit and apply it correctly in the new deed of sale.

A practical example of how to calculate the first-time buyer’s tax credit

To better understand how the first-home tax credit works, it may be helpful to look at a practical example.

Situation	Amount
Tax paid on the initial purchase of a first home	€ 3.000
Tax payable on the purchase of a first home	€ 2.000
Tax credit due	€ 2.000

In this case, the taxpayer paid €3,000 in registration tax on the first purchase, whereas the tax due on the new purchase is €2,000.

As the tax credit is equal to the lower of the two taxes, the credit available for use will be €2,000.

This means that the registration tax on the new purchase may be reduced by up to that amount.

Tax credit where the initial purchase was subject to VAT

A common question arises in cases where the initial purchase of the first home was made from a builder and subject to VAT, whereas the subsequent purchase is made from a private individual and is therefore subject to stamp duty.

The legislation provides that the tax credit is payable in any event, even if the two transactions are subject to different tax regimes.

In this case, the tax credit will be equal to the VAT paid on the first purchase, but it may only be used up to the amount of VAT due on the new purchase.

The tax system therefore allows for the recovery of taxes paid even when the first purchase was subject to VAT and the second purchase is subject to stamp duty.

Please note: The tax credit cannot be claimed against the current tax liability if the second purchase is subject to VAT; in such cases, the credit must be utilised in the other ways permitted by law.

How to claim the first-time buyer tax credit

Once it has accrued, the first-home tax credit can be used in a number of ways.

The credit can be used:

• a reduction in the registration tax payable on the new purchase
• offset against other taxes due via the F24 form
• a reduction in personal income tax on the tax return.

If the tax credit is not claimed directly in the new deed of sale, it can be claimed when filing your tax return or used to offset other taxes.

Where to enter the first-home tax credit on Form 730

If the tax credit is not fully utilised towards the new purchase, it can be claimed back via your tax return.

On Form 730, the tax credit for the repurchase of a first home is entered in Section G – Tax Credits, usually on line G1.

The amount of the credit may therefore be deducted from the IRPEF due.

When you lose your first-home tax credit

The tax credit for a first home may be forfeited if the conditions laid down by law are not met.

In particular, the credit is not payable where:

• the new property is not purchased within one year of the sale of the previous home
• the new property does not meet the criteria for the first-time buyer scheme
• the taxpayer no longer meets the eligibility criteria for first-home benefits.

Failure to comply with these requirements will result in the loss of the right to the tax credit and the loss of the tax relief.

The role of the notary in the first-time homebuyer tax credit

In the case of the repurchase of a first home, the solicitor responsible for the new deed of sale plays an important role in verifying compliance with the legal requirements.

The notary checks:

• whether the criteria for the first-time buyer scheme are met
• the existence of the right to a tax credit
• the correct calculation of the tax credit due

These checks ensure that the taxpayer can claim the first-home tax credit without the risk of a tax dispute and that the benefit provided for by law is used correctly.

In specific situations, such as repurchasing a property before selling it or claiming a tax credit, it is always advisable to consult a solicitor to ensure that the relevant legislation is correctly applied to the specific case.

FAQ – First-time homebuyer tax credit