Improvement or expansion works will increase the acquisition value of the property

The distinction between what constitutes an investment in a property and what is a maintenance expense is fundamental for determining the taxable base in a future transfer of assets. The Dirección General de Tributos (DGT) has clarified the tax treatment of works carried out on properties for the purposes of Personal Income Tax (IRPF).

What the DGT has resolved

The advisory body has established a differentiating criterion based on the impact the work has on the asset. According to the resolution, works are classified into two categories:

• Expansion or improvement works: These are those that increase the capacity, habitability, or extend the useful life of the property. These investments must be integrated into the acquisition value of the asset.
• Repair or conservation works: These are those intended exclusively to maintain the useful life and capacity for use of the property without increasing its features. These do not form part of the acquisition value.

This distinction is based on the regulations of the Personal Income Tax Regulation (RIRPF) and the General Tax Law (LGT).

What it means for you

If you are a property owner, especially if the property is intended for rental, you should be aware that not all disbursements made on the dwelling have the same tax treatment. At the time of selling the property, the acquisition value is a key element for calculating capital gains or losses.

If the works carried out are considered improvements or expansions, you will be able to add them to the acquisition cost, which will reduce the resulting capital gain and, therefore, the tax to be paid. Conversely, if the works are classified as conservation repairs, you will not be able to use them to increase said value.

What you should do

It is necessary to maintain exhaustive documentation that allows for the accreditation of the nature of each intervention carried out on the property. For a work to be admitted as part of the acquisition value, its capacity to improve the habitability or the useful life of the asset must be demonstrated. It is recommended to keep detailed invoices and, in cases of large-scale works, to have technical reports that justify that the action constitutes an improvement and not a mere repair.