Back to index
V2090-20 23 June 2020 · SG de Impuestos sobre las Personas Jurídicas Criterion in force
IS · existencias

Selling and overhead expenses cannot be capitalised as part of real estate inventory costs

A real estate company has enquired whether management expenses and a portion of overheads can be capitalised as part of housing costs to be deducted upon sale. Based on a report from the ICAC, the DGT has determined that these expenses must be recognised in the financial year in which they are incurred.

The question raised

1. In those fiscal years in which no income is generated from the residential real estate trading activity, but management activities and expenses have been incurred for said activity, is it possible for such expenses and a proportional part of the general expenses to be capitalized as an increased cost of the properties that are subsequently sold, and thus deducted in the fiscal year in which the corresponding income from said activity is generated?

The DGT's ruling

Real estate intended for sale must be classified accounting-wise as inventory. According to the accrual principle and accounting regulations, expenses incurred during the sales process and general expenses cannot form part of the acquisition cost of the inventory nor be subject to deferral. Therefore, they must be charged to the profit and loss account in the fiscal year in which they occur, a treatment that must be adopted for tax purposes pursuant to the Corporate Income Tax Act (LIS).

Book your free first meeting