Deduction of mortgage cancellation expenses in Personal Income Tax (IRPF)

Determining the net income from real estate capital in Personal Income Tax (IRPF) is a key aspect for property owners who rent out their real estate. A recurring question has been whether the costs derived from the cancellation of a mortgage loan can be included as deductible expenses.

What the DGT has ruled

The Directorate General of Taxes (DGT) has clarified that the expenses associated with the cancellation of a mortgage credit are deductible for the calculation of the net income from real estate capital. This specifically includes the costs of:

• Notary
• Property Registry
• Management fees

The criteria establish that these amounts must be treated as financing expenses, equating them to the interest on third-party capital invested in the acquisition of the real estate property. This interpretation is based on the current regulations of Personal Income Tax (LIRPF Law 35/2006 and its Regulation RD 439/2007).

What it means for you

If you are an individual who obtains income from renting out real estate and has proceeded to cancel the mortgage on said property, this criterion has a direct impact on your tax burden. By being able to include notary, registry, and management fees as deductible expenses, the net income on which you are taxed will be lower, which reduces the taxable base of the income from real estate capital.

What you should do

It is necessary to keep all documentation proving the payments made for the cancellation, such as management invoices or receipts for notary and registry fees. Since the application of this criterion depends on the correct integration of financing expenses in the tax return, it is necessary to assess each particular situation to ensure that the deduction is applied in accordance with current regulations.