Renovation works will not count as reinvestment unless they involve structural rehabilitation

Individuals selling their primary residence with the aim of applying the reinvestment exemption for a new residence must distinguish precisely between an improvement renovation and structural rehabilitation. Not all investments made in the new home allow for an increase in the exempt amount of Personal Income Tax (IRPF).

What the DGT has ruled

The Dirección General de Tributos (DGT) has determined that, for expenses derived from works in the new home to be considered part of the reinvested amount, they must be of a rehabilitation nature. This implies that the actions must focus on the consolidation of essential elements of the building, such as:

• Structures.
• Facades.
• Roofs.

The criterion establishes that readaptation works, the redistribution of interior spaces, or the improvement of facilities (such as plumbing or electricity) do not qualify as rehabilitation for the purposes of the exemption. Likewise, a quantitative limit is imposed: the global cost of said rehabilitation works must exceed 25% of the acquisition price or the market value of the building. In the event that the works do not meet these requirements, only the amounts destined for the acquisition of the home will be understood as reinvested.

What this means for you

If you plan to sell your primary residence and buy another to benefit from the reinvestment exemption, you will not be able to automatically include the budget for a comprehensive renovation in the calculation of the reinvested amount. If the investment is intended to modernize the home or change the layout, the Tax Agency will only allow the purchase price of the property to be computed, excluding the construction costs.

What you should do

It is necessary to analyze the technical nature of the works before making the investment if the objective is to maximize the tax exemption. If the actions are limited to aesthetic improvements or facilities, the impact on the exemption base will be nil. In the event that structural rehabilitation works are carried out, it is fundamental to keep all technical documentation and invoices proving that the intervention affects the consolidation of the property and that its cost exceeds 25% of the building's value.