Deductibility of expenses for rental properties: DGT criteria

The Dirección General de Tributos (DGT) has issued a relevant criterion regarding the deductibility of expenses associated with properties that are in a state of expectation of rental. The core of the issue lies in determining whether repairs and annual expenses can be fully deducted or must be applied proportionally to the actual lease time.

What the DGT has resolved

The DGT determines that repair and maintenance expenses are deductible as long as their purpose is exclusively to obtain income and not for the owner's enjoyment. For this deduction to be valid, it is necessary to prove the property's status of expectation of rental.

Regarding the amount, the deductible amount cannot exceed the total income obtained. If the expense exceeds said income, the excess may be offset in the following four years. However, there is an important distinction for annual expenses, such as Property Tax (IBI) or insurance. The latter are only deductible proportionally to the number of days the property remains effectively leased.

What this means for you

If you are the owner of a property intended for rent, you must distinguish between two types of costs for your Personal Income Tax (IRPF) declaration:

• Repair and maintenance expenses: If carried out to prepare the property for a future tenant, they can be fully deducted (provided the expectation of rental is proven), subject to the limit of the income and the possibility of offsetting the excess in future tax years.
• Annual expenses (IBI, insurance): These cannot be fully deducted if the property has not been rented for the entire year; instead, they must be prorated according to the days of actual lease.

What you should do

It is fundamental to maintain documentation that proves the intention to lease the property and the nature of each expense incurred. The correct classification of invoices and the calculation of the proportionality of annual expenses will prevent discrepancies with the Tax Administration. It is recommended to assess each particular situation to ensure that the application of the LIRPF and RIRPF regulations is appropriate according to the actual use of the property.