Improvement or expansion works may increase the acquisition value of a property

At the time of transferring a property, the calculation of capital gains or losses in Personal Income Tax (IRPF) depends directly on the acquisition value. A determining factor in this calculation is the possibility of including costs derived from works carried out on the property during the time it has been held in your assets.

What the DGT has resolved

The Dirección General de Tributos (DGT) has clarified the distinction between expenses that can be integrated into the acquisition value and those that cannot. According to the established criteria, works that result in an increase in capacity, habitability, or an extension of the property's useful life are considered expansions or improvements. These concepts form part of the acquisition value of the asset.

In contrast, expenses exclusively intended for repair and maintenance, whose objective is to maintain the current useful life or capacity of use of the home, cannot be included in said value. For these costs to be admitted, the taxpayer has the obligation to justify the nature of the works through evidence admissible in Law.

What it means for you

If you are a homeowner and carry out interventions in your property, you must precisely distinguish the purpose of each investment. If the work aims to expand the usable surface area or substantially improve the conditions of use, you may use that amount to raise the acquisition value. This has a direct impact on the tax settlement, as a higher acquisition value reduces the taxable base of the capital gain at the time of sale.

However, if the actions are merely for maintenance to prevent the deterioration of the property, the regulations do not allow their incorporation into the acquisition value, as these are expenses that do not increase the cost of the asset for tax purposes.

What you should do

It is fundamental to maintain exhaustive and rigorous documentation of all actions carried out on the property. To ensure that improvement works are accepted by the Administration, you must have:

• Detailed invoices that specifically describe the type of work performed.
• Evidence proving that the intervention represents an improvement in the habitability or capacity of the property.
• Technical documentation if the nature of the work requires it to distinguish improvement from maintenance.

Each situation is unique, so it is necessary to assess the nature of each expense before including it in the transfer tax return.