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V2781-19 10 October 2019 · SG de Impuestos sobre la Renta de las Personas Físicas Criterion in force
IRPF · deducción por inversión en vivienda habitual

Main residence tax relief and interest deductions remain applicable following loan consolidation

A taxpayer consolidated two mortgage loans (one for a main residence and one for a rental property) into a single loan and sought guidance on the tax implications. The Directorate General of Taxes (DGT) ruled that it is possible to continue applying the main residence tax relief and to deduct the interest related to the rental property on a proportional basis.

The question raised

Question posed: To determine whether it is correct to include in the Income Tax return, under each corresponding tax concept, a portion of the interest in proportion to what the outstanding principal to be amortized of each original loan represents relative to the principal of the current unified loan upon its cancellation. To know whether there must be any document indicating said operation and what it would be. To know whether there has been any modification regarding these points since the year 2011.

The DGT's ruling

The substitution of one loan for another to amortize the former does not exhaust the right to the deduction for investment in the primary residence. The installments and interest of the new loan shall entitle the taxpayer to the deduction in the proportional part attributable to the original housing loan. Regarding income from real estate capital, the interest on third-party capital invested in the acquisition of the asset is deductible from the gross income. The taxpayer must prove the connection with the lender, the purpose linked to the housing, and the justification of its repayment.

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