Landowners cannot declare losses in value without selling the asset

The valuation of real estate assets often presents fiscal challenges, especially when the market experiences fluctuations that reduce the market value of an asset compared to its acquisition value. A recurring question is whether this latent loss in value can be used to reduce the taxable base of Personal Income Tax (IRPF).

What the DGT has ruled

The Directorate General of Taxes (DGT) has determined that, for a loss in land value to be tax-deductible, an effective transfer of the asset must occur. According to the established criteria, as long as the sale or transfer of the asset does not take place, it is not possible to impute any capital loss in the income tax return.

In cases where the requirements to be considered an economic activity are not met, the difference between the acquisition value and the market value has no immediate tax effects. The loss will only be reflected at the moment the sale is formalized, manifesting as the lower value obtained upon transfer.

What this means for you

If you are an individual who owns land and has observed a decrease in its market value, this situation does not allow you to reduce your tax burden in advance. The IRPF regulations (Law 35/2006) and the General Tax Law require the occurrence of the taxable event to recognize the impact on equity.

This implies that:

• Price fluctuations do not automatically generate a deduction or a compensable loss.
• The tax impact is deferred until the moment of the actual transfer of the land.
• It is not possible to declare a capital loss based solely on technical or market valuations if the owner retains ownership.

What you should do

When holding real estate assets with market values lower than the acquisition cost, it is necessary to evaluate the optimal time for transfer according to each taxpayer's financial objectives. Since the loss only materializes upon sale, the decision to transfer must consider both the impact on the taxable base and the necessary liquidity situation. It is recommended to assess each particular situation to determine the real tax impact at the time of the transaction.