Difference between improvement and repair works for Personal Income Tax (IRPF)

At the time of transferring a property, the determination of capital gains or losses depends directly on the acquisition value. A recurring question is whether the expenses incurred on the property during ownership can be integrated into said value to reduce the tax burden.

What the DGT has ruled

The Directorate General of Taxes (DGT) has clarified the distinction between the different types of interventions carried out on a property. According to the established criteria, not all construction expenses receive the same tax treatment:

• Repair and maintenance works: Those intended exclusively to maintain the useful life or the capacity for use of the property do not form part of the acquisition value.
• Extension or improvement works: Those that increase the capacity, habitability, or useful life of the property do constitute part of the acquisition value.

The classification of these works will depend strictly on their technical and functional nature. For these expenses to be admitted, the taxpayer must justify them through invoices that comply with all the legal requirements established in the current regulations.

What it means for you

If you are an individual planning to sell a property, it is fundamental to distinguish the nature of the works carried out. If the interventions were merely for maintenance, you will not be able to add them to the acquisition cost to reduce capital gains in the IRPF. However, if the works have increased the capacity or habitability of the asset, these may be integrated into the acquisition value, which leads to a reduction in the taxable base of the capital gain.

What you should do

It is necessary to perform a detailed analysis of the nature of each work carried out. To ensure the correct application of this criterion, it is essential to:

• Keep all legal invoices that prove the execution of the works.
• Clearly identify whether the intervention represented a structural improvement or a simple repair.
• Assess each situation individually to determine the correct integration of expenses in the transfer.