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.
3. Tributes
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…
6. Insurance
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.
8. Depreciation
Depreciation of the property is a relevant deductible expense when calculating rental income. Current regulations allow a deduction of 3 per cent per year of the building value, excluding the value of the land. The proportion between land and construction can be obtained from the local property tax (IBI) assessment.
The depreciation is applied proportionally to the number of days during the year in which the property has been rented.
This deduction reduces the acquisition value for the purposes of calculating any future capital gain on disposal, which is particularly relevant in sales or restructuring transactions.
According to recent Supreme Court case law (2023 and 2024), when the property has been acquired through inheritance or gift, the depreciation base is the full acquisition value declared for the relevant tax, and not only the amount of expenses and taxes associated with the inheritance or gift.
This new doctrine corrects the previous administrative practice, which significantly limited the deductible depreciation in such cases, and establishes a more favourable interpretation for taxpayers.
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