News

Start of main content

Income Tax Declaration 2019: the 9 expenses that the owner of a rented property can deduct

| News | Tax

Javier Vinuesa and Óliver Padilla analyze certain tax benefits in the taxation of homeowners in order to encourage leasing for El Confidencial

At a time when the number of owners who decide to rent their homes is increasing, it is important to know the tax advantages that this act entails.

The rental of dwellings in Spain does not present only tax advantages for tenants. The legislator has also provided for the incorporation of certain tax benefits in the taxation of homeowners in order to encourage leasing.

The income obtained by the landlord due to renting a dwelling must be included in the owner's Personal Income Tax return. These rents would have the character of yields of real estate capital unless the lessor carries out an economic activity in accordance with that indicated in article 27.2 of the Personal Income Tax Law, that is to say, it provides for the ordering of the activity of renting dwellings of a person employed under a full-time employment contract. However, in both cases, the yield obtained would be included in the general taxable base of the lessor, taxed on the yield obtained in accordance with the progressive rates established for said rents, higher than those of the savings income provided for in the Personal Income Tax Law.

But it's not all going to be negative. The landlord's rental income may be reduced by several expenses to determine the so-called net return. We can also apply a reduction of 60% on this net return provided that the returns obtained have the character of return on real estate capital and the lease is intended for the regular residence of the tenant. It would not be worth, therefore, to apply this reduction if the rent is destined to another purpose, as it can be the rent of offices, the rent for tourist use...

Let's break it down. Article 23.1 of the Personal Income Tax Law states that, in order to determine net income, all expenses necessary to obtain such income shall be deducted from the income obtained by the lessor. The normative text itself, together with its regulatory development, quotes a list of expenses that can be considered as deductible:

  1. The interest on loans or credits requested for the acquisition or improvement of the property or of the right or faculty of use from which the income obtained comes.
  2. Regular repair and maintenance costs incurred for the purpose of maintaining the normal use of tangible property, such as painting, plastering or repairing installations, replacing items such as heating installations, lifts, security doors or others. On the contrary, amounts destined for extension or improvement shall not be deductible.
  3. Non-state taxes and surcharges, as well as state taxes and surcharges, if they do not have a sanctioning nature.
  4. Amounts accrued by third parties in direct or indirect consideration as a result of personal services, such as administration, surveillance, concierge or similar.
  5. Those caused by the formalization of the lease or sublease and those of legal defence relating to goods, rights and yields.
  6. Balances of doubtful loans provided that the debtor is in a situation of insolvency or, when more than six months have elapsed between the time of the first collection management carried out by the taxpayer and that of the end of the tax period.
  7. The amount of the premiums of the insurance contracts, whether of civil liability, fire, theft, breakage of glass or other of similar nature, on the goods or rights that produce the yields.
  8. The amounts destined for services or supplies: light, water, telephone, gas...

The amounts destined to the depreciation of the property. The Personal Income Tax Regulation itself considers that depreciation meets the effectiveness requirement when, in each year, it does not exceed the result of applying 3 per cent to the higher of the following values: acquisition cost or cadastral value, excluding the calculation of land. The personal property leased together with the property itself shall also be depreciated in accordance with the percentages provided for in the Regulations.

Once the deductible expenses have been deducted, the lessor may apply the 60% reduction provided that the lease is for the lessee's dwelling. The reduction is general and does not depend on the age of the tenant. This reduction is only applicable with respect to the positive net yields declared by the taxpayer, and the reduction is not possible in the case of negative yields or positive yields that are discovered by the Tax Administration after a verification or inspection procedure.

Finally, although it is not frequent, the Personal Income Tax Law provides for an additional reduction of 30% for those cases in which the lessor obtains a notoriously irregular performance or generated during a period of more than two years.

You can see the article in El Confidencial

End of main content