Deductibility of interest and depreciation in rental activities

The Dirección General de Tributos (DGT) has issued a relevant ruling for individuals carrying out economic activities of real estate leasing through the direct estimation method. The inquiry focuses on the possibility of including financial costs and the depreciation of the real estate asset as deductible expenses.

What the DGT has ruled

The binding body establishes that loan interest is deductible as long as the liability is necessary to obtain income and the property is used for the economic activity. Likewise, it confirms the deductibility of property depreciation, which must be calculated using the acquisition value as a base, always excluding the value of the land.

Regarding the acquisition value for depreciation, the DGT allows the inclusion of the following concepts:

• Notary fees.
• Registry fees.
• Loan formation costs.

For these concepts to be admitted, they must be linked to the activity, have the corresponding justification, and be correctly recorded in the accounting records.

What it means for you

If you carry out a real estate leasing activity under the direct estimation regime, this ruling allows you to optimize the taxable base of your economic activity. The key lies in the correct use of the property for the activity and the necessity of the loan to generate income. The possibility of including formation and notary costs in the depreciation base has a direct impact on the calculation of annual deductible expenses.

What you should do

It is essential to ensure that all expenses, both interest and loan formalization costs, are duly documented and linked to the rental activity. The correct segregation of the land value from the construction value is an indispensable requirement for calculating depreciation. It is recommended to verify that the accounting faithfully reflects these movements to comply with current regulations.