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V3116-14 19 November 2014 · SG de Impuestos sobre la Renta de las Personas Físicas Criterion in force
IRPF · actividad económica

Real estate development by a community of property constitutes an economic activity if intended for sale to third parties

Members of a community of property have sought clarification regarding the taxation of a real estate development on their land. The DGT has ruled that this constitutes an economic activity if there is an intent to sell, applying the direct estimation method and valuing inventory based on either production cost or market value.

The question raised

Corresponding Personal Income Tax (IRPF) taxation for the co-owners regarding the payments and expenses incurred for the development of the project and for the adjudication of the dwellings to the co-owners and their transfer to the initial landowner or to a third party.

The DGT's ruling

Real estate development constitutes an economic activity if carried out for the purpose of sale to third parties, whether under a community regime or through prior adjudication. Net income is determined by direct estimation, incorporating into the cost of inventory the value of the affected assets from personal assets and construction expenses. In the case of self-consumption, the normal market value shall apply. If the entirety of the development is intended for the personal use of the co-owners without a planned sale, it is not considered an economic activity.

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