Limit on the deduction for investment in primary residence for co-owners

The Dirección General de Tributos (DGT) has issued a relevant ruling for individuals who share ownership of a home and assume the mortgage payments. The inquiry addressed the possibility of applying the deduction for investment in a primary residence to the total amount of installments paid, even when the taxpayer only held 33.33% ownership of the property.

What the DGT has ruled

The body has determined that the tax benefit for investment in a primary residence is strictly linked to the ownership of full title to the property. In the case analyzed, the taxpayer was a co-owner of an undivided third part and, furthermore, was the only person responsible for satisfying the installments of a joint and several loan among three people.

The DGT concludes that, although the loan is joint and several and a single co-owner pays the entirety of the installments, the deduction base cannot exceed the ownership percentage held by the taxpayer over the home. Therefore, as they only own 33.33% of the property, the deduction can only be applied to that percentage of each payment made.

What this means for you

This ruling directly affects individuals in co-ownership situations, such as those occurring in inheritances, marriages under the separation of assets regime, or shared acquisitions. If you are the owner of a proportional part of a home and assume the total mortgage payment by agreement with the other owners, you will not be able to apply the tax deduction to the full amount of the installments.

The tax administration links the capacity for deduction to the actual ownership of the asset and not to the cash flow or the joint and several liability towards the financial institution. The fact that the debt is joint and several does not alter the tax base of the deduction in Personal Income Tax (IRPF).

What you should do

In situations of co-ownership and shared mortgage payments, it is necessary to precisely verify the ownership percentage stated in the property deed. The correct application of the deduction requires aligning the ownership percentage with the amount of the sums intended to be deducted in the IRPF tax return to avoid possible requests for information from the Tax Agency.