Real estate capital gains tax: reinvestment conditions, tax deferral, and aggregation of holding periods when no tax was paid on the initial disposal

Federal Supreme Court, 11.03.2026, 9C_177/2025

Facts

In 2003, a taxpayer (A.) acquired half of a property (Property 1) by donation, which her father had owned since 1972. Her future spouse (B.) acquired the other half in the same year. The couple established their home there.

In 2016, they sold Property 1. The sale price was paid partly in cash and partly through the future delivery of two apartments, one of which would become their new home (Property 2). When this sale was assessed, the taxpayer, benefiting from her father's period of ownership (1972–2016), was taxed on her real estate gain at a rate of 0% and therefore paid no tax. Her spouse, whose period of ownership was shorter (2003–2016), was taxed at 10% and paid the corresponding tax.

In 2018, the couple formally acquired Property 2 and moved in. The spouse then claimed the reinvestment of the gain from the sale of Property 1 and obtained a partial refund of the tax he had paid.

In 2020, the couple sold Property 2. The taxpayer declared the gain realized and maintained that it should be taxed at 0%, arguing that the acquisition of Property 2 constituted a reinvestment, which justifies aggregating the ownership periods of both properties (since 1972). 

The Geneva Cantonal Tax Administration (AFC) rejected this argument. It took the position that there can be no reinvestment if no tax was paid on the first sale. Consequently, it taxed the taxpayer's gain based on a short ownership period (2018–2020), applying a rate of 40%. In parallel, the AFC taxed the spouse's identical gain by aggregating the ownership periods (2003–2020), which resulted in a rate of 10%.

The taxpayer challenged this decision. The Court of Justice of the Republic and Canton of Geneva ruled in her favor, finding that the payment of tax is not a condition for reinvestment. The AFC then appealed to the Federal Supreme Court.

Law

The dispute concerns the interpretation of the conditions for tax deferral in the event of reinvestment and its consequences for the calculation of the ownership period.

1. Real estate gains tax and tax deferral (art. 12 LHID): Real estate gains tax is a cantonal tax harmonized by the Federal Act on the Harmonization of Direct Taxes of the Cantons and Communes (LHID).Art. 12 para. 3 LHID provides an exhaustive list of cases where taxation is deferred. Tax deferral is not an exemption, but a postponement of taxation until a subsequent alienation that does not qualify for a new deferral.

1. Reinvestment (art. 12 para. 3 let. e LHID): Taxation is deferred in the event of the alienation of a primary residence, provided that the proceeds from the sale are used, within a reasonable period, to acquire a replacement residence in Switzerland serving the same purpose. The legal conditions are cumulative and leave no room for maneuver for the cantons. The text of the law does not mention the actual payment of tax on the first alienation as a condition for benefiting from the deferral.

1. Geneva cantonal law (LCP): The Geneva Law on Public Contributions (LCP) provides for a degressive tax rate system based on the duration of ownership (art. 84 LCP), which could reach 0% for ownership exceeding 25 years.art. 85 LCP establishes a specific mechanism where the tax is collected and then refunded in the event of reinvestment.art. 82 para. 3 LCP specifies that when disposing of a property acquired via a transfer that qualifies for tax deferral, the duration of ownership is calculated from the last disposal subject to tax.

Application to the specific case

The Federal Supreme Court examines two main questions: could the taxpayer benefit from the reinvestment provision, and if so, what are the consequences for the tax rate?

1. Regarding the existence of a reinvestment: The AFC argued that reinvestment is conditional upon the payment of tax on the first sale, as the purpose of the deferral is to allow the taxpayer to reinvest their entire gain, which presupposes that tax was initially due. The Federal Supreme Court rejects this argument for several reasons:
   1. Clear text of the law: Art. 12 para. 3 let. e LHID does not provide for the payment of tax as a condition for reinvestment. Adding such a condition would contradict the clear text of the law.
   2. Purpose of the law: The legislator's intent (to facilitate reinvestment) cannot be used to create a condition that the law itself does not impose.
   3. Cantonal law: The interpretation of art. 85 LCP by the Court of Justice, according to which the tax refund is a consequence and not a condition of reinvestment, is not arbitrary.
   4. Primacy of harmonized federal law: Making reinvestment conditional upon the payment of tax would allow a peculiarity of cantonal law (the 0% rate after 25 years) to undermine a rule of harmonized federal law. The conditions for tax deferral are set exhaustively by the LHID and are binding on the cantons. The Federal Supreme Court therefore confirms that the acquisition of property 2 did indeed constitute a case of reinvestment for the taxpayer.

1. Regarding the consequences of reinvestment (aggregation of ownership periods): The AFC argued that recognizing a reinvestment in this case would create a "deferral fiction" for the sole purpose of reducing the tax rate. The Federal Supreme Court also dismisses this argument:
   1. Logic of deferral: The principle of tax deferral implies that, upon subsequent sale (that of property 2), taxation is postponed. Jurisprudence and legal doctrine confirm that this deferral has the effect of aggregating the ownership periods of successive properties.
   2. Application of cantonal law (art. 82 para. 3 LCP): The Court of Justice correctly interpreted Geneva law by concluding that reinvestment leads to the aggregation of ownership periods. This interpretation is not arbitrary.
   3. Principle of equal treatment: The Federal Supreme Court notes that the AFC itself applied this aggregation principle to the taxpayer's spouse, by calculating his ownership period from 2003 to 2020 for the sale of property 2. Denying this same calculation to the taxpayer, who is in an analogous situation, would be inequitable and inconsistent with the administration's own practice.

Outcome

The Federal Supreme Court rejects the appeal by the Geneva Cantonal Tax Administration and confirms the judgment of the Court of Justice. It is ruled that the payment of real estate gains tax during the first disposal is not a condition for benefiting from tax deferral for reinvestment. Consequently, the taxpayer is entitled to aggregate the ownership periods of property 1 (since 1972) and property 2. The case is remanded to the AFC to issue a new tax assessment applying a 0% rate to the gain realized on the sale of property 2.

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