Tax Considerations in Real Estate Investment – What to Watch Out For?

Real estate investment is considered one of the safest and most popular forms of wealth building in Hungary. However, many investors tend to overlook the tax obligations that can significantly affect the actual return. Below, we summarize the key tax aspects to keep in mind when buying, selling, or renting out property.

1. Taxation on Property Sales

When selling a property, a taxable capital gain may arise. This is calculated by deducting the following from the selling price:

the original purchase price,

acquisition-related costs (e.g., lawyer’s fees, transfer tax),

and value-adding improvements (e.g., renovations).

Important: The tax liability decreases with the number of years you own the property. After five years (for residential property), the capital gains tax (personal income tax) is fully exempt.

2. Taxation on Rental Income

Rental income is also subject to taxation. Currently, private individuals must pay 15% personal income tax on rental income.

Landlords can choose between two methods:

Detailed cost accounting, where actual expenses (maintenance, renovation, utilities, etc.) are deducted, or

10% lump-sum deduction, where 10% of income is automatically considered as expenses.

Additionally, some municipalities may impose local property or tourism taxes.

3. Short-Term Rentals (e.g., Airbnb)

Short-term rentals are taxed differently than long-term leases. In this case, the landlord must register as a sole entrepreneur and may apply either flat-rate taxation or, if eligible, the KATA small business tax system. Tourism tax and VAT obligations may also apply if income exceeds a certain threshold.

4. Property Transfer Tax

When purchasing a property, buyers must pay a 4% transfer tax on the purchase price. However, there are exemptions and discounts available, for example:

for first-time buyers under the age of 35,

when buying newly built properties,

or in the case of property swaps.

5. Tax Considerations for Foreign Investors

Foreign investors are also subject to taxation in Hungary on income derived from property. However, double taxation treaties determine in which country the tax should ultimately be paid.

Conclusion

Taxation in real estate investments is complex and can significantly influence profitability. Therefore, every investor should consult with a tax advisor or accountant to ensure compliance while maximizing financial efficiency.

Real estate investments are only truly profitable if tax aspects are carefully planned from the very beginning.