Taxpayers cannot change the installment basis for recognizing gains after filing their tax return

Managing capital gains derived from the sale of assets with deferred payments requires a technical decision that has long-term consequences. The Dirección General de Tributos (DGT) has clarified the scope of choosing between the general recognition method and the special basis for recognizing gains from installment operations in Personal Income Tax (IRPF).

What the DGT has ruled

The ruling analyzes whether a taxpayer can recognize the entirety of a capital gain that is pending recognition in a single tax year. The DGT's criteria establish that choosing the special recognition basis (provided for in Article 14.2.d of the LIRPF) over the general rule constitutes a tax choice between mutually exclusive regimes.

As this is an alternative exercised freely, the decision is subject to the rule of irrevocability established in Article 119.3 of the General Tax Law (LGT). Consequently, once the regulatory deadline for filing the tax return has expired, the taxpayer does not have the possibility to renounce the chosen criterion. If the proportional recognition basis was chosen, the gain must continue to be recognized in accordance with the payments due in each tax year.

What this means for you

If you are an individual who sells an asset and agrees to deferred payments, you must be aware that the decision on how you will tax that gain is not discretely reversible. If you decide to opt for the special regime to spread the tax burden as you receive payments, you must maintain that criterion throughout the entire duration of the collection period.

This ruling by the tax authority prevents taxpayers from attempting to accelerate the recognition of gains in specific tax years for tax convenience once the filing deadline has concluded.

What should be done

In the event of a sale with deferred payments, it is necessary to evaluate the financial impact of both regimes before filing the income tax return. The choice should be based on the forecast of cash flows and the projected tax burden, understanding that the adopted option will be definitive for that operation once the legal filing deadline has passed.