DGT: Difference between improvement works and repair expenses in property sales

The calculation of capital gains or losses upon the transfer of real estate depends directly on the correct determination of the acquisition value. A recurring question among taxpayers is whether investments made after the purchase can be integrated into said value to reduce the tax burden at the time of sale.

What the DGT has ruled

The Dirección General de Tributos (DGT) has clarified the distinction between the concepts of improvement and repair. According to the established criteria, the acquisition value includes the cost of investments and improvements made to the acquired assets. Specifically, works aimed at increasing the capacity, habitability, or useful life of the property are considered improvements or extensions and, therefore, form part of the acquisition value.

Conversely, expenses exclusively intended for repair and maintenance, whose purpose is to maintain the current useful life or capacity of use of the property, cannot be integrated into said value. For these investments to be admitted, the taxpayer is obliged to justify the nature of the works through invoices and other means of proof that certify their character as an improvement.

What it means for you

If you are a homeowner and plan to sell your property in the future, the distinction between what constitutes an improvement and what constitutes maintenance is fundamental for your Personal Income Tax (IRPF) declaration. Correctly integrating extension or improvement works allows for an increase in the acquisition value, which reduces the taxable base of the resulting capital gain.

However, not every expense related to the property is deductible under this concept. If the expenses are limited to keeping the home in usable condition, the Tax Agency (Hacienda) will not allow their inclusion in the acquisition value, which could lead to a calculation of gain higher than the actual amount and, consequently, a higher tax payment.

What you should do

It is necessary to maintain rigorous tracking of the documentation for any intervention in the property. To ensure the correct application of the regulations, the following points should be observed:

• Keep all invoices that detail the specific nature of the work performed.
• Clearly differentiate between interventions that increase the value of the asset and those that only ensure its conservation.
• Assess each particular situation with a professional to determine the appropriate tax treatment according to IRPF regulations and the General Tax Law (Ley General Tributaria).