Purchasing a new home outside the two-year period prevents the reinvestment exemption

The application of the exemption in Personal Income Tax (IRPF) for the reinvestment of the amount obtained from the sale of a primary residence is subject to strict compliance with the deadlines and conditions established by current regulations. A recent resolution from the Dirección General de Tributos (DGT) precisely delimits when an amount is considered to have been effectively reinvested.

What the DGT has ruled

The DGT has specified that, to benefit from the exemption provided for in Article 38 of the IRPF Law, the acquisition of the new home must be carried out within the two-year period, whether before or after the date of the sale of the primary residence. Any amount destined for the purchase of a new residence outside of this period cannot be counted as reinvested.

Likewise, the inquiry addresses the possibility of including rehabilitation work expenses in the exemption. For these amounts to be considered reinvested, they must meet two concurrent requirements:

• The main purpose of the works must be the reconstruction of structural elements, such as structures, facades, or roofs.
• The cost of said works must exceed 25% of the value of the building.

In both cases, both the acquisition of the home and the payment for the works must be carried out within the two-year period relative to the date of the disposal of the primary residence.

What this means for you

If you are an individual planning to sell your primary residence to acquire another, the timing factor is critical. It is not enough to have the intention to reinvest the money; the operation must be executed within the two-year window to prevent the capital gain from being subject to IRPF taxation.

Regarding renovations, not just any improvement to the home allows for a reduction in the tax burden. Only those large-scale structural interventions that exceed the threshold of 25% of the property's value may be integrated into the reinvestment calculation, provided that the legal deadlines are respected.

What you should do

It is necessary to rigorously track the dates of the purchase and sale deeds and the payments made for works. Since compliance with these requirements is strict, it is recommended to assess each particular situation to ensure that capital movements comply with the provisions of the IRPF Law and its Regulations.