Compensation for duplicate return of earnest money will be taxed as a capital gain

Within the framework of sales and purchase agreements, the resolution of an agreement may result in the return of increased penitential earnest money. The Directorate General of Taxes (DGT) has specified the tax treatment these amounts must receive when the amount received exceeds the initial payment.

What the DGT has ruled

The ruling analyzes the treatment in the IRPF of the amount that exceeds the sum initially paid as penitential earnest money. The criteria establish that said excess constitutes a capital gain, in accordance with Article 33.1 of the Personal Income Tax Law (LIRPF).

As it is not the result of a transfer of assets, this gain is not integrated into the savings tax base, but must instead be attributed to the general tax base, pursuant to the provisions of Articles 45 and 48 of the LIRPF. Likewise, the tax obligation arises in the tax period in which the refund becomes payable or when the agreement for its satisfaction is reached.

What this means for you

If you are an individual receiving compensation for the resolution of a contract where penitential earnest money was agreed upon, you must take into account that not all the money received has the same tax treatment. Only the portion that exceeds the amount you originally paid generates the obligation to pay tax.

This excess is considered an increase in wealth that raises your general tax base. This implies that the amount will be added to your other income (such as salaries or capital income) to determine the applicable tax rate, which could increase your annual tax burden.

What is advisable to do

In a situation of contractual resolution with the return of earnest money, it is necessary to precisely identify the net amount of the excess received. The correct determination of the moment when the amount becomes payable is fundamental to declaring the income in the corresponding tax year and avoiding errors in the IRPF settlement. Given that integration into the general base can have a significant impact on the marginal rate, it is necessary to assess the particular situation of each taxpayer.