Owners may maintain the primary residence deduction following the termination of co-ownership

The possibility of continuing to apply the deduction for investment in a primary residence after a change in property ownership has been analyzed by the Tax Administration. In situations involving the termination of co-ownership, doubts arise as to whether the transitional regime allows for the maintenance of this tax benefit on the new ownership share or on the expenses derived from debt restructuring.

What the DGT has ruled

The Dirección General de Tributos (DGT) has determined that the transitional regime provided in the eighteenth transitional provision of the Law on Personal Income Tax (LIRPF) remains applicable in these cases. The criteria are divided into two parts:

• Regarding the portion acquired before 2013: The transitional regime is maintained as long as the deduction was applied in periods prior to the regulatory reform.
• Regarding the portion acquired after the termination: The former co-owner may apply the deduction to this new portion provided they had already applied the deduction for their share of the residence before 2013 and had not exhausted their right to it.

However, the Administration establishes a strict limit: the deductible amount for this new portion may not exceed the amount the taxpayer would have been able to deduct if the termination of co-ownership had not occurred.

What this means for you

If you are an individual who owns a residence acquired before 2013 and experiences a change in ownership due to divorce or the termination of co-ownership, you do not automatically lose the right to the deduction. However, the benefit is not unlimited. The right is preserved for the portion of the property that was already subject to the deduction and extends to the new portion under specific conditions regarding previous use of the benefit and amount limits.

What you should do

In the event of a change in the ownership composition of a residence, it is necessary to perform a precise calculation to determine what percentage of the new mortgage or the expenses caused by the change in ownership can be considered subject to deduction. It is essential to verify whether the right to the deduction was exhausted in previous years and to ensure that the claimed amount does not exceed the limit that would have applied without the change in ownership. It is recommended to assess each particular situation to ensure compliance with the requirements of the LIRPF.