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A homeowners' association has enquired whether it can deduct legal expenses when receiving compensation for construction defects. The Directorate General of Taxes (DGT) has ruled that these fees do not affect the determination of the change in net wealth.
This ruling clarifies that legal costs incurred to obtain compensation cannot be used to offset the capital gain recognised by a homeowners' association, potentially increasing the tax burden on such indemnities.
The tax team reviews your specific situation.
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