Main residence deduction: includes mortgage cancellation expenses

The Dirección General de Tributos (DGT) has issued a relevant ruling for taxpayers who are still covered by the transitional regime for the deduction for investment in the main residence. The inquiry focused on determining whether amounts destined for the cancellation of a mortgage loan can be included in the base for said deduction.

What the DGT has ruled

The administration has ruled that, under the transitional regime established in the 18th Transitional Provision of the Personal Income Tax (IRPF) Law, the deduction base includes all amounts paid for the acquisition of the housing. This specifically includes expenses derived from the cancellation of the mortgage.

The ruling establishes that the deduction must be applied in the tax period in which the payments for said cancellation are actually made. This right is maintained regardless of the tax year in which the last installment of the loan matures, provided that the requirements of the transitional regime are met. It should be noted that the application of this deduction is subject to an annual limit of 9,040 euros.

What this means for you

If you are an individual who maintains the right to the deduction for investment in the main residence, this pronouncement clarifies a common scenario when a loan is finalized. The costs you incur to formally cancel the mortgage are not isolated expenses, but rather form part of the acquisition cost that allows for a reduction in the tax liability.

This implies that, in the year in which you make the disbursement to cancel the debt, you will be able to include that amount in your income tax return, respecting the legal limits established in Law 35/2006.

What you should do

It is necessary to verify whether your personal situation fits within the transitional regime of the 18th Transitional Provision of the IRPF Law. If you are going to proceed with the cancellation of your mortgage loan, you must keep all documentation proving the payment of the cancellation expenses to be able to apply them in the corresponding tax year.

Since the application of the deduction depends on the exact date of the payments and compliance with the acquisition requirements, it is recommended to assess each particular case to ensure that the calculation of the deduction base is correct.