Capital gains on a primary residence: when the taxpayer’s defense falls apart

A taxpayer sold a house and, in order to qualify for the capital gains exemption (Article 150 U of the General Tax Code), declared that the house was his primary residence.

administration subsequently launched a tax audit of this real estate sale. In particular, they requested and obtained data from the water and electricity providers regarding the property’s usage and concluded that it did not constitute the taxpayer’s primary residence at the time of the sale.

In addition to adjusting the capital gains tax on the property, the tax authority also imposed a 40% penalty on the taxpayer, finding that he had intended to evade taxes.

The taxpayer then defended himself in court by stating that, due to his work schedule, he was only at his primary residence in the evenings and on weekends, which explained the lower water and electricity usage.

The argument fell flat. The Court noted that water consumption for a three-person household between 2015 and 2017 was only one cubic meter, whereas the average consumption in France is approximately forty cubic meters per person per year. The figures were similar with regard to electricity consumption.

The Court further considers that this virtually zero consumption demonstrates the taxpayer’s intent to evade tax and justifies the application of the 40% surcharge for willful noncompliance.

With regard to tax adjustments related to capital gains on the sale of a primary residence, it is also worth noting that the Council of State recently ruled that, in determining whether a property constitutes a taxpayer’s primary residence, the sole basis should be the actual occupancy of the property, rather than the taxpayer’s intention: see the news article on the firm’s website.

If you have a question about the procedures for a tax audit of a capital gain for an individual, please refer to our frequently asked questions on tax audits for individuals.

Link to the decision: Bordeaux Administrative Court of Appeal, March 6, 2025, No. 23BX00184