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V2908-21 18 November 2021 · SG de Impuestos sobre la Renta de las Personas Físicas Criterion in force
IRPF · ganancia patrimonial

No capital gains tax applies if material damage compensation is used entirely for repairs

A taxpayer inquired whether compensation for damage to their property is subject to Personal Income Tax (IRPF) and if legal and expert fees can be deducted as capital losses. The Directorate General for Taxes (DGT) ruled that no gain occurs if the amount matches the repair costs, and that legal defence expenses are not deductible.

The question raised

Taxation in the Personal Income Tax (IRPF) of the amount of €29,542.33 corresponding to the compensation for material damage to the property. Furthermore, the possible consideration of legal, court agent, and expert fees as a capital loss is inquired.

The DGT's ruling

Compensation for losses in assets generates a capital gain or loss based on the difference between the amount received and the proportional part of the acquisition value of the damaged asset. If the compensation coincides with the cost of repairs, no capital gain or loss occurs. Legal fees, court agent fees, and expert fees cannot reduce the capital gain nor be considered a loss, as they are consumption expenses. There is no legal deadline for carrying out repairs, although it is recommended to apply them within the same tax period.

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