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V3105-20 16 October 2020 · SG de Impuestos sobre la Renta de las Personas Físicas Criterion in force
IRPF · pérdida patrimonial

Demolishing a property may result in a capital loss if no compensation is received

A taxpayer has enquired whether the demolition of their home and the associated costs constitute a capital loss for Personal Income Tax (IRPF) purposes. The Directorate General for Taxes (DGT) has ruled that demolition is a change in assets that may generate a loss if no compensation is received.

The question raised

It is requested to know whether the demolition and the associated expenses give rise to a capital loss for the purposes of calculating Personal Income Tax.

The DGT's ruling

The demolition of the dwelling constitutes an alteration in the composition of the assets which results in a variation in their value. If the building is not insured and no compensation is received, a capital loss will be generated for the acquisition value of the dwelling (excluding the land), which shall be integrated into the general taxable base. Demolition expenses are considered investments and improvements that increase the acquisition value of the land for future transfers.

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