The deadline for adhering to the updating of the value of real estate for tax purposes, as established by Law No. 14,973/2024 and regulated by Normative Instruction No. 2,222/2024, is 16 December. This mechanism allows taxpayers to adjust the market value of their real estate, enjoying reduced tax rates on capital gains. However, the decision to adhere to this measure requires careful analysis, given its definitive and irreversible nature, as well as the short and long-term tax impacts.

The Benefit: Reduced Taxation on Capital Gains

Updating property values to market prices offers a significant reduction in the tax rates applicable to capital gains. Normally, the income tax (IR) calculation for individuals varies between 15% and 22.5%, depending on the gain range, while for companies the sum of 15% IR and 9% Social Contribution on Net Profits (CSLL) is levied.

With the possibility brought in by the new legislation, the percentages drop substantially:

• Individuals: Reduced IR rate for 4%.
• Legal entities: 6% of IR and 4% of CSLL.

This benefit applies exclusively to the difference between the acquisition cost recorded on the property and its updated market value.

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Temporal Implications: A Long-Term Strategy

Although the reduction in tax rates is attractive, adhesion should be analysed with caution, considering the length of time the property will be owned after the update. If the taxpayer chooses to sell the property in the first three years after the update, the tax savings could be cancelled out or even result in a higher total cost, since the reduced rates are paid at the time of the update and the normal rates are charged at the time of sale.

The legislation allows for a gradual appropriation of the upgrade cost, which increases over time:

• 36 to 48 months: 8% of the upgrade cost may be appropriate.
• 48 to 60 months: 16%.
• 60 to 72 months: 24%.
• Total appropriation: After 15 years (100%).

This rule benefits taxpayers with a long-term horizon for selling their property, while disadvantaging those who plan to sell it in a shorter period of time.

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Procedures for updating property values

To join the scheme, taxpayers must take the following steps:

1. Fill in the Declaration of Option to Update Real Estate (Dabim): The form is available on the IRS e-CAC portal.
2. Pay the tax due by 16 December: Payment must be made via the Federal Revenue Collection Document (DARF) generated in the e-CAC system itself.

It is essential that all the data is entered correctly and that the values are compatible with appraisal reports or recognised methods for determining the market value of the property.

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Pros and Cons: Strategic Decision

The decision to opt for property value upgrades should be based on a careful analysis of the following aspects:

Advantages:

1. Immediate Tax Reduction: Reduced rates offer significant savings, especially for properties with high appreciation.
2. Avoid tax surprises in the future: Updating the value of the property today reduces the tax impact at the time of a future disposal, should this occur after the appropriation period.

Disadvantages:

1. Initial cost: The need to pay the reduced income tax by 16 December represents an immediate outlay.
2. Impact on Short-Term Sales: The option is less advantageous for those who plan to sell the property in less than three years, due to the normal tax rates levied on the remaining capital gain.
3. Irretractable Character: After joining, the decision cannot be reversed, requiring careful planning.

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Legal and Tax Aspects

Taxpayers who choose to update should pay attention to the supporting documentation, especially in the event of future inspections. It is advisable to keep technical reports proving the market value used in the calculation, as well as monitoring regulatory changes that may impact the IRS's interpretation.

Companies that have real estate registered as fixed assets should consider the impact of the update on the calculation of real profit and presumed profit, assessing possible effects on the basis for calculating taxes such as IRPJ and CSLL.

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How TWS Consultancy Can Help

The decision to update the value of a property for tax purposes requires detailed planning and in-depth technical knowledge. A TWS Consultancy offers complete support to help with decision-making and compliance with tax obligations. Among the services offered are:

• Feasibility Analysis: Identification of the pros and cons based on the profile of the property and the taxpayer's goals.
• Detailed Tax Calculations: Simulations of the financial impact of updating and future collection.
• Drawing up documentation: Assistance in preparing the necessary reports and statements.
• Deadline and Compliance Management: Ensuring that all procedures are carried out on time and in accordance with legal regulations.
• Strategic Consultancy: Guidance for companies and individuals on the long-term effects of updating.

With TWS Consultoria, you can make informed decisions and optimise your tax position by aligning tax benefits with your wealth objectives.

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Reference Sources

1. Law 14.973/2024: Planalto Portal
2. Normative Instruction 2.222/2024: Inland Revenue
3. e-CAC Portal: Federal Revenue Service - e-CAC

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