Differences in depreciation calculations based on property ownership

The Directorate General of Taxes (DGT) has clarified the procedure for determining the depreciation of income from real estate capital in Personal Income Tax (IRPF) when the ownership of a property is not full.

What the DGT has ruled

The inquiry addresses how to calculate depreciation when different real rights exist over the same asset. The criteria establish that the calculation varies depending on the nature of the ownership:

• For full ownership: Depreciation is determined by applying 3 percent to the higher value between the acquisition cost (excluding the value of the land) or the cadastral value (also excluding the land).
• For usufruct: Depreciation is calculated by applying 3 percent to the acquisition cost paid, including the expenses and taxes derived from said acquisition.

Furthermore, it has been specified that, in situations where a temporary usufruct is established, the income generated is attributed entirely to the person holding the corresponding ownership.

What this means for you

If you are a property owner, you must precisely identify which right you hold to avoid errors in declaring your real estate income. Being the owner of the entire asset is not the same as possessing only the usufruct or the bare ownership. An error in the depreciation calculation base can lead to an incorrect tax assessment, as the elements to be considered (acquisition cost versus cadastral value) change according to the taxpayer's legal position.

What you should do

It is necessary to analyze the property deed to determine whether you hold full ownership or a limited real right. Once ownership has been identified, the depreciation formula corresponding to each case must be applied, ensuring the correct exclusion of the land value in full ownership calculations. Since IRPF regulations and its Regulation govern these aspects, proper documentation of acquisition expenses is fundamental for the usufruct calculation.