Taxpayers may deduct mortgage cancellation expenses for their primary residence

The application of the deduction for investment in a primary residence has raised doubts regarding the scope of the concepts that can constitute the base for said deduction. A recent resolution from the Dirección General de Tributos (DGT) clarifies whether the costs associated with the cancellation of a mortgage loan can be subject to this tax benefit.

What the DGT has ruled

The query concerned whether the amounts paid as cancellation expenses for a mortgage loan are computable for the primary residence investment deduction. The binding body has determined that these expenses are indeed included in the deduction base.

The criterion establishes that the deduction applies to the amounts paid for the acquisition of the home, which includes:

• Expenses originating from the acquisition itself.
• Expenses derived from the financing of said acquisition.

Consequently, the costs arising from canceling the mortgage loan are considered expenses derived from financing and, therefore, form part of the deduction base in accordance with the Personal Income Tax Law (LIRPF).

What this means for you

This resolution has a direct impact on individuals who maintain the right to the primary residence investment deduction under the transitional regime. If you cancel your mortgage loan, the costs associated with this procedure should not be considered an isolated expense, but can be integrated into the calculation of the deduction.

It is important to highlight that the deduction must be applied in the tax period in which said cancellation expenses were effectively paid, and not at the time of the acquisition of the home or the contracting of the mortgage.

What you should do

To ensure the correct application of this criterion, it is necessary to:

• Keep all documentation proving the payment of the mortgage cancellation expenses.
• Verify that the requirements of the transitional regime for the primary residence investment deduction are met.
• Assess the inclusion of these amounts in the deduction base in the tax year corresponding to the disbursement.

Since the application of tax regulations depends on the particular circumstances of each taxpayer, it is recommended to analyze each situation individually to confirm compliance with the legal requirements.