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

When selling a home, the calculation of capital gains or losses for Personal Income Tax (IRPF) depends directly on the acquisition value of the property. A determining factor in this calculation is the inclusion of costs derived from works carried out after the purchase.

What the DGT has resolved

The Directorate General of Taxes (DGT) has clarified the distinction between expenses that can be integrated into the acquisition value and those that cannot. According to the established criteria, the acquisition value includes the cost of investments and improvements made to the acquired assets. Works aimed at increasing the capacity, habitability, or useful life of the property are classified as improvements or extensions.

Conversely, expenses intended for repair and maintenance do not form part of the acquisition value. The latter are those carried out to maintain the normal use or useful life of the asset without increasing its essential characteristics. The classification of each work and its proper accreditation are matters of fact that must be assessed by the management and inspection bodies.

What it means for you

If you are a homeowner and plan to sell your property in the future, you must precisely distinguish the nature of the interventions you carry out on your property. If the works increase capacity or habitability, you will be able to add them to the acquisition value, which will reduce the taxable base of the capital gain. If the works are merely for maintenance or repair, you will not be able to include them for this purpose, which could result in a higher tax impact upon sale.

What you should do

It is essential to maintain exhaustive documentation of all interventions carried out on the property. For a work to be considered an improvement, it must be possible to prove that it has provided added value in terms of capacity or useful life. It is recommended to:

• Keep all invoices and proof of payment for the works carried out.
• Clearly differentiate between improvement and repair concepts in your accounting and documentation.
• Assess each particular case according to the technical nature of the work performed.