What are the limits on the capital gains exemption for primary residences?

Capital gains realized on the sale of a primary residence are tax-exempt, regardless of the number of transactions carried out.
 

When you sell a property you own, you must calculate the difference between the property’s sale price and its purchase price. If the result of this calculation is positive (you sell it for more than you paid for it), you realize a gain known as capital gain. If the result is negative, you realize a loss known as capital loss. The capital gain is reduced by a deduction: a flat or proportional reduction applied to the tax base (income, property value, etc.) that depends on how long you owned the property. 
 

Capital gains on real estate, after deducting any allowances, are subject to income tax at a rate of 19%. For a taxable capital gain of €20,000, the income tax is €3,800 (€20,000 × 19%). An additional tax applies if the taxable capital gain exceeds €50,000. The rate ranges from 2% to 6%, depending on the amount of the capital gain realized. You must also pay social security contributions at a rate of 17.20%.
 

However, you are fully exempt from capital gains tax if you realize a capital gain on the sale of your primary residence and its outbuildings (basement, garage, parking space, yard, etc.).
This refers to your usual and actual residence—that is, the one you occupy for most of the year. The property must be your primary residence at the time of sale. In the event of separation or divorce, it is sufficient for one of the former spouses (whether married, in a civil partnership, or cohabiting) to have occupied the property until it was put up for sale.
 

The number of exemptions is not limited by law. However, a judge may impose sanctions for abuse of this provision, provided that it is demonstrated that the residence is not the taxpayer’s primary residence. 

For example, a taxpayer had, over a period of thirteen years, carried out nine transactions involving the purchase of land and the resale of single-family homes that he had had built on that land, classifying these sales under the exemption provided for primary residences. 
 

The tax authorities had challenged these exemptions, arguing that, as a result of these transactions, the taxpayer qualified as a real estate dealer.  The trial court judges had ruled in favor of the tax authorities. The Council of State (CE June 14, 2023, No. 461960) overturned the ruling of the Bordeaux Administrative Court of Appeals on the grounds of an error of law; the Bordeaux court had found, on the one hand, that these transactions were motivated by speculative intent and, second, that the taxpayer had failed to prove that the properties were his principal residence at the time of their sale, even though the tax authorities had neither challenged the designation of certain properties as principal residences nor alleged an abuse of rights. 
 

Consequently, unless an abuse of rights is invoked, the presumption that there was no speculative intent in the successive acquisition of several properties occupied as the taxpayer’s primary residence precludes the classification of such activity as that of a real estate dealer. The case is remanded to the same court, which must determine, for each of the transactions in question, whether or not the property was, in fact, used as the taxpayer’s primary residence at the time of resale.