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V0458-22 10 March 2022 · SG de Impuestos sobre la Renta de las Personas Físicas Criterion in force
IRPF · rendimientos del capital inmobiliario

Tax treatment of security deposits withheld for damages and repair costs in rented properties

A co-owner seeks guidance on how to declare income from a security deposit withheld for damages and the repair costs incurred while the property was vacant. The DGT rules that the deposit constitutes gross income and that repair costs are deductible if they are intended to facilitate future rental income.

The question raised

How to proceed with declaring real estate capital income in the 2021 Personal Income Tax return.

The DGT's ruling

The amount of the security deposit withheld for damages must be accounted for as gross income from real estate capital. Repair and maintenance expenses incurred while the property is awaiting lease are deductible if they are directed exclusively toward the future generation of income and not toward the owner's enjoyment. The amount of these expenses may not exceed the gross income for the period, and any excess may be deducted in the following four years. Unpaid rents may be deducted as bad debts if the legal requirements are met.

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