A deal of buying or selling a property at a lowered price is not only disadvantageous but also dangerous for all participants involved. Real estate agent Maria Kudrevatykh explained the risks faced by both sellers and buyers.
When a property seller wants to save on income tax, they suggest stating a price lower than the actual value in the contract. The remaining amount is usually transferred off the record with additional agreements. In exchange, the seller often promises a discount on the property. However, lawyers and real estate agents strongly advise against agreeing to such a deal. In essence, it is considered tax fraud.
“If the tax authorities catch a person for undervaluing the property, they risk becoming an accomplice in a crime,” explains the expert. “The individual may face not only civil but also criminal liability if the unpaid tax amount is significant.”
Avoiding tax payment is not possible; the tax authorities will recalculate it based on the full value of the apartment or house that the parties tried to conceal in the deal. Furthermore, by law, the seller will be charged with penalties and fines ranging from 20 to 40% of the property price or the amount of unpaid tax.
Many buyers do not even think about it, but in case of any property disputes, only the price stated in the sales contract will be considered. All additional agreements offered by the seller are not considered significant evidence even in legal disputes. If the deal is challenged for any reason, upon termination, the court will require the seller to pay the buyer the amount stated in the contract – which is significantly less than the actual value of the property. However, the buyer may not even receive this money if the seller undergoes bankruptcy proceedings. Claiming the amount owed from a bankrupt individual is a lengthy and practically unsuccessful process.
“Additionally, the buyer risks losing money if they plan to sell the purchased apartment before the end of the taxable period – three or five years,” the expert adds. “The reason is that the buyer will be required to pay tax on the difference between the future value of the apartment and the price stated in the previous sales contract. Undervaluing the price is a dangerous and always unpredictable path. Recently, a buyer was persuaded to avoid such a deal, only to find out later that the seller was being sued for fraud.”