Second home ownership (second home) is becoming increasingly popular. At the same time, it is not uncommon for the acquisition of a second home to be made using funds from the sale of another property before the expiration of five years from the end of the year in which it was acquired or built, and thus under conditions indicating that such a sale is subject to income tax. The question arises as to whether the housing tax credit can be applied in such cases..

What is the mechanism of the housing tax credit?.

According to the regulations, in principle, any sale of real estate (a building, land, right of perpetual usufruct of land, residential premises, as well as the cooperative ownership right to a residential or commercial premises and the right to a single-family house in a housing cooperative) made before the expiration of five years from the end of the year in which the acquisition or construction of the property took place, is subject to PIT in Poland.

However, the regulations provide for the possibility of applying exemption from taxation. The exemption applies if the income from the sale of the property is spent for so-called own residential purposes within a period of no more than three years from the end of the year in which the sale took place.

At the same time, the exemption can only apply to part of the income earned from the sale of real estate. The application of the housing allowance in such a situation is illustrated by the following formula:

PIT exempt income = income * housing expenses / income from the sale of real estate.

In addition, the condition for taking advantage of the relief is that the real estate purchased must be located in a member state of the European Union or in another country belonging to the European Economic Area, or in the territory of the Swiss Confederation.

Despite their relatively straightforward design, the provisions governing the housing tax relief are the source of many interpretive discrepancies. An area of particularly significant doubt is the concept of "housing purposes".

Housing purposes vs. ownership of several residential properties.

Until recently, there was a belief among tax authorities that the application of the housing tax credit was impossible in the case of owning more than one residential property. This was because the authorities believed that in this type of case it was not possible to effectively demonstrate in which property the residential purposes were being fulfilled for the purposes of the regulations governing the housing tax credit. This position was wrong, as it actually led to the creation of conditions for the application of the housing tax credit that did not arise from the PIT Law. In order to take advantage of the housing tax credit, it is irrelevant for the taxpayer to have ownership of another dwelling (or a single- or multi-family building). This is because the regulations do not limit the right to the exemption as to the number of real estate (dwellings) owned or purchased, but indicate that the benefit of the exemption applies only to those properties (dwellings) that actually serve to satisfy the taxpayer's own housing needs. This means that at the time the expense is incurred, the taxpayer's goal should be to seek to actually live in the new property.

Currently, therefore, the right to apply the housing tax credit should no longer be much in doubt in a situation in which a taxpayer owns several properties (some of which may be used, for example, for rental or short-term housing), and then sells one of them before the expiration of the five-year deadline in order to purchase or build another property in which he will pursue his housing purpose by permanently residing there.

A situation that is currently much more questionable is whether the housing tax credit applies to the acquisition of a property in which the taxpayer will only reside for part of the year, that is, in the case of the acquisition or construction of a so-called second home.

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Housing tax credit vs second home concept.

The basic condition for taking advantage of the housing tax credit is the realization of one's own housing goals. Therefore, if the purchase of a second home is used only for capital investment, investment in the form of rental, renovation for later resale at a profit, or for the realization of the housing needs of others, such as children or other family members, the housing tax credit is not available.

Similarly, the situation will be similar if the second house is used exclusively for recreational purposes, so it will be a typically seasonal property (e.g., a vacation home). This is because the provisions of the PIT Law exclude expenses incurred for recreation from the scope of the relief.

The matter becomes more complicated when we are dealing with a property whose construction and purpose does not differ from a typically residential property, in which the realization of a residential purpose is not in doubt. This could be, for example, an apartment or a year-round house located in a different place than the property where the taxpayer currently resides.

It should be noted that the provisions of the PIT Law nowhere exclude the right to realize housing purposes in more than one property. Consequently, it would be untrue to say that it is not possible to take advantage of the housing tax credit if the income from the sale of real estate is used for the acquisition or construction of a property in which the taxpayer will reside for only part of the year.

However, it should be borne in mind that the acquisition of more than one property with the intention of pursuing a housing purpose in each of them should be substantiated by the personal needs of the taxpayer in question. Otherwise, it is relatively easy for the tax authorities to undermine the right to apply the relief by arguing that the acquisition of the property was solely for recreational purposes. For example, it will be difficult to demonstrate that the acquisition of a residential unit in the south of Spain with the intention of using it only during vacations or vacations serves the residential purposes of the taxpayer in question.

According to recent tax interpretations, circumstances justifying the use of the housing tax credit for the acquisition of more than one property are, for example:

- The taxpayer's health condition and medical recommendations, the remote performance of professional duties (interpretation dated September 29, 2023, No. 0113-KDIPT2-2.4011.481.2023.2.KK);
- Family circumstances, i.e., the desire to be with a daughter living abroad for several months of the year (interpretation dated September 14, 2023, No. 0113-KDIPT2-2.4011.569.2023.1.ACZ);
- Intention to stay in an apartment located abroad for 6 months during the year after retirement (interpretation dated December 5, 2023, No. 0115-KDIT2.4011.455.2023.2.MM);
- Caring for a disabled child (interpretation dated April 14, 2022, 0114-KDIP3-2.4011.114.2022.2.AC).

In summary, taking advantage of the housing tax credit will not be possible in a situation where the acquisition of a second home is motivated by only recreational needs. However, in a situation where the realization of a housing goal in more than one property is justified by the life needs of the taxpayer in question, the right to apply the housing tax credit should be available. Given the ambiguity of the regulations and the lack of established practice, each such situation should be analyzed separately. It is also recommended to apply for a individual tax interpretation, which would confirm the legitimacy of using the housing tax credit in specific circumstances.