Capital gains obtained in the transfer of the taxpayer's principal residence may be exempt when the total amount obtained from the transfer is reinvested in the acquisition of another principal residence or in the rehabilitation of a residence that will be designated as the principle residence.

When, in order to acquire the transferred principal residence, the taxpayer has made use of external financing, the total value obtained from the transfer shall be understood as the value of the transfer, under the terms and conditions set out in the Tax Law, minus the principal of the loan that remains outstanding.

• • The concept of the Principal Residence.

    For tax purposes, the principle residence of the taxpayer is considered to be the building that constitutes his or her residence for a continuous period of at least three years.However, it will be understood that the residence was the usual residence when, despite this deadline not having elapsed, the death of the taxpayer or other circumstances occur which necessitate a change of residence, such as marriage, marital separation, work transfer, obtaining a first job, changing jobs or other justified similar situations.

    in order for the residence acquired to constitute the taxpayer's usual residence it must be effectively and permanently inhabited by the taxpayer himself or herself for a period of twelve months, counted starting from the date of acquisition or of termination of building works. It shall be understood, however, that the residence acquired does not lose the designation of "usual residence" when the circumstances stipulated in the Tax Regulation arise

    The rehabilitation of the residence to be designated as the usual residence must meet the criteria that give rise to an entitlement to a deduction for rehabilitation.

  • Reinvestment deadline.

    Reinvestment of the amount obtained from the disposal must be made, either once or in successive investments, within a period not greater than two years, counted from date to date. This period may be the two years after sale of the previous place of residence, but can also include years before the sale.

    Nevertheless, and exceptionally, in cases in which a new residence is acquired prior to the transfer of the principal residence and this acquisition took place during the financial years 2006, 2007 or 2008, the term of two years for the transfer of the usual residence, established as a general rule under tax legislation, shall be extended until the 31st ofDecember 2010 for all transfers.

    In earlier cases, it shall be understood that the taxpayer is transferring his or her principal residence:

    • When the housing transferred constitutes the principle residence at the time of the sale or would have been considered as such up until any point within the two years prior to the transfer date.
    • When the housing transferred would have ceased to be the principle residence owing to the taxpayer's having transferred his or her principle residence to the new home at any time after its acquisition.

• Partial reinvestment.

  if the amount reinvested was lower than the total obtained in the disposal, only the proportional part of the capital gain corresponding to the amount effectively reinvested under the conditions described above will be exempt from taxation.