Taxpayers may apply the exemption for reinvestment in homes under construction

The application of the exemption for reinvestment in the primary residence constitutes a key mechanism for reducing the tax burden following the sale of a property. However, the nature of the new acquisition determines compliance with certain temporal requirements that the Dirección General de Tributos (DGT) has recently specified.

What the DGT has ruled

The inquiry analyzes whether the acquisition of a home under construction allows access to the exemption provided for in Article 38.1 of the Personal Income Tax (IRPF) Law. The criteria establish that the reinvestment is valid provided that two concurrent conditions are met:

• Investment period: The amount obtained from the sale of the primary residence must be applied to the construction of the new home within a period of two years, either before or after the transfer of the original property.
• Construction completion period: Construction must conclude within a period not exceeding four years from the start of the investment.

Furthermore, the DGT clarifies that construction periods are calculated from the first payment made that is considered a reinvested amount. In the event of partial reinvestment, the exemption will only be applied proportionally to the portion of the gain that has been reinvested.

What this means for you

If you are an individual selling your primary residence with the intention of building a new one, you do not need to wait for the construction to be finished to consider the operation a valid reinvestment. Payments made to the developer prior to the sale of your current home can be counted as reinvestment, provided they remain within the time limits established by the IRPF and RIRPF regulations.

What you should do

It is fundamental to maintain rigorous monitoring of payment schedules and construction execution. Since the four-year period for the completion of construction begins with the first payment intended for reinvestment, it is necessary to document every disbursement to prove compliance with the deadlines to the Administration. Each situation of partial or total reinvestment must be analyzed to determine the exact impact on the IRPF taxable base.