In the tax declaration the real state must be declared. These can be of two types:
– On the one hand, the imputation of income for second homes or other property that are unoccupied.
– On the other hand, and it is what concerns us today, the outputs obtained by renting property. In this article we will see how we deduct some expenses when the property is rentedt because, in this case, there are certain deductible expenses in the tax declaration.
The net income of the property is determined by the difference between the proceeds (the rent charged by the tenants) and the expenses incurred for such performance.
Deductible expenses of the income from a property rented are any expenses that can be demonstrated as necessary to obtain income from that property, so you can determine the net income of this.
We have to know that there is a limit of deductible expenses. In the sum of interest expense and maintenance and repair must not exceed the amount of income realized. That is, you cannot get a negative return for these expenses.
The limit on deductible expenses if there are several leases in one year on the same property is calculated considering the amounts paid in the year and the income earned during that period.
Expenses related to leased property that can be deducted, taking into account certain details are as follows:
1. Interest and financing costs
Interest on loans for the acquisition or improvement of immovable property and financing costs are deductible, considering that it is necessary to prove by deeds that such accounts or loans are dedicated to that purpose.
2. Maintenance and repair.
You can deduct expenses incurred for the maintenance of material goods such as painting, plastering or arrangement of facilities; and the replacement, but not installation, of certain elements such as heating, elevator, security doors…
On the contrary are not deductible amounts which had the objective to improve the property. These expenses are considered as an investment, because of its improvement, and will be taken into account when the transfer of the property to determine whether there has been a patrimonial gain or loss.
Nor are those deductible expenses incurred before or after lease the property, unless if it can be demonstrated a correlation between these costs and revenues subsequent proven and also that these expenses have not been directed to the owner enjoyment.
Other non-deductible expenses are those payments as a result of an accident that result in a decrease of the value of assets, such as fires, floods…
As discussed above, the sum of these two costs referred to deduct must not exceed the yield obtained property.
Both non-state taxes and state fees and charges are deductible as long as they have an impact on the computed incomes and have no punitive nature
An example of deductible non-state taxes is the Property tax, such as rates of lighting or cleaning.
On the other hand the ITP and VAT are not deductible expenses:
– In leases of business premises, parking spaces … yes it can be deduced quotas VAT, computing services as excluding VAT.
– In the case of rental accommodation, VAT levied on deductible services expenses means a higher value and therefore they may be deductible as an expense.
4. Personal services
Certain services such as janitorial, gardening or surveillance are deductible expenses. When the property is in horizontal property regime, these services are often part of the community own expense, deductible as well.
5. Legal costs
Certain legal expenses related to the management of the property may be deductible. An example of this is the costs of performing the contract, or those resulting from lawsuits relating to claim the collection of rents owe, evictions…
Insurance premiums payed by the owner or usufructuary can be deducted. These contracts can cover civil liability, fire, theft…
7. Services and Supplies
Services and supplies (water, electricity, gas) spent on the property can be deducted only if the owner is who pays them and not the tenant, as it is logical.
A major expense to consider and that is deductible is the depreciation of the property. This is to provide as spending 3% of the construction value of the property (whose proportion to the total acquisition value can be found on the receipt of IBI (Local Property Tax).
This expenditure is applied proportionally to the days of the year that property has been leased, and it is important to take this into account when making the transfer of the property, since it depreciates the acquisition value.
9. Transitional arrangements
For previous lease contracts 09.05.1985 not entitled to the revision of the income of the contract, is allowed include as a deductible expense, as long as it subsist that situation and in compensation, the corresponding amount to the amortization property.
To summarize, it must be remembered that there are certain deductible expenses of a leased property, expenses related to interest and financing costs, maintenance costs of the facilities, legal related to the management of the property, insurance, some services and supplies if paid by the owner, amortization expenses, transitional arrangements and gardening services … that may or may not be included in the community fees.
We should note two more recent considerations:
- When the lease has been given for a specified period you may fully deduct expenses that have occurred during this period. If it comes to annual expenses such as depreciation or IBI, you must prorate the amount depending on the number of days that lasted the property leasing.
- The costs of compensation that an owner has to be paid as a result of an eviction are also considered deductible.
If you have any questions or need a professional advise do not hesitate to contact us at https://gmtaxconsultancy.com/en/contact/