Home renovations only count toward the exemption if they are structural rehabilitations

The reinvestment exemption for the primary residence is a mechanism that allows individuals to avoid paying Personal Income Tax (IRPF) on the capital gains derived from the sale of their home, provided the amount is used to acquire a new home. However, the possibility of including the costs of works carried out on the new home to increase the exempt amount is subject to strict requirements.

What the DGT has ruled

The Directorate General of Taxes (DGT) has determined that, for expenses derived from works in the new home to count as part of the reinvestment, these must be strictly classified as rehabilitations. According to the established criteria, the rehabilitation must have the primary objective of reconstruction through the consolidation and treatment of structural elements, such as:

• Structures.
• Facades.
• Roofs.

The administration expressly excludes from this concept readaptation works, space redistribution, or improvements to installations and carpentry. Likewise, for these costs to be computable, the amount of the works must exceed 25% of the acquisition price or the market value of the home.

What this means for you

If you plan to sell your primary residence and buy a new one that requires renovations, you must take into account that not every expense on the new property will allow you to increase the tax-exempt amount. If the works you carry out consist of improving energy efficiency, changing windows, or redistributing rooms, the DGT considers that these expenses are not structural rehabilitations.

Consequently, if the works do not meet the nature of structural reconstruction or do not reach the 25% value threshold, the exemption will be limited solely to the amounts destined for the acquisition of the property, without the possibility of adding the costs of the renovations.

What you should do

In an operation of this type, it is necessary to:

• Identify whether the planned works in the new home are structural in nature or mere improvements.
• Verify whether the cost of said works will exceed 25% of the value of the home.
• Have the technical documentation available to prove the nature of the rehabilitation if necessary.
• Assess each particular situation to determine the real tax impact of the operation.