Main residence tax deduction: replacement of mortgage loan

The Directorate General of Taxes (DGT) has issued a relevant ruling for taxpayers who are under the transitional regime of the deduction for investment in the main residence. The central issue is whether changing from a mortgage financing modality to a personal loan entails the loss of the right to apply said deduction to the new installments.

What the DGT has resolved

The body has determined that replacing one loan with another does not exhaust the right to the deduction, as this operation only modifies the financing conditions. For the amounts paid through the new loan to entitle one to the deduction, specific requirements must be met:

• Direct continuity: There must be a clear connection between the previous loan and the new one.
• Destination of funds: The new credit must be effectively used to amortize the original loan linked to the residence.
• Proportionality: The deduction will be applied to the proportional part attributable to the original loan intended for the residence.
• Proof: The taxpayer is obliged to justify the connection with the lender, the destination linked to the residence, and the repayment of the funds.

What it means for you

If you are an individual applying the deduction for investment in the main residence due to the transitional provisions of Law 35/2006, this ruling provides you with legal certainty. It is not strictly necessary to maintain the mortgage loan structure to preserve the tax benefit, provided that the replacement operation is a continuation of the debt intended for the acquisition of the residence.

What you should do

In an operation of this type, it is fundamental to maintain exhaustive documentation that allows for the traceability of the money to be proven. It is necessary to keep the contracts for both loans, the receipts for the amortization of the previous credit using the funds from the new one, and any document demonstrating that the new loan has the sole purpose of canceling the previous mortgage debt. Given the complexity of the burden of proof, it is recommended to assess each particular situation to ensure that all requirements of the General Tax Law are met.