The new owner of a property may deduct 100% of the mortgage after the dissolution of a co-ownership

The ownership of a primary residence may change due to divorce proceedings or the dissolution of a co-ownership (condominio). In these scenarios, doubts arise as to whether the new sole owner can continue applying the deduction for investment in the primary residence in their Personal Income Tax (IRPF) return.

What the DGT has ruled

The Dirección General de Tributos (DGT) has clarified that, following the dissolution of a co-ownership, the new owner may claim the deduction for 100% of the amounts linked to the mortgage loan, provided certain requirements are met:

• The former co-owner must have applied the deduction in tax years prior to 2013.
• The former co-owner must not have exhausted their ability to claim the deduction.
• The amount of the deduction for the acquired portion is limited to what the former co-owner would have been entitled to deduct if the dissolution had not taken place.

Furthermore, the ruling confirms that the novation or substitution of the loan does not interrupt the right to the deduction, provided that the new loan is specifically intended to amortize the previous loan.

What this means for you

If you have acquired the entirety of a property that previously belonged to several owners (co-ownership), you do not automatically lose the right to the deduction for the portion that now belongs to you. This benefit is conditional upon the previous tax situation of the former co-owners and the nature of the investment made before 2013.

It is relevant to note that the financial management of the debt, such as replacing the mortgage with a new one, does not result in the loss of the tax right, provided that the purpose of the funds is the amortization of the previous debt linked to the property.

What you should do

In the event of a change in ownership derived from the dissolution of a co-ownership, it is necessary to verify the status of the deduction applied by the former co-owners. You must check if there were any pending deduction bases and ensure that any mortgage novation operation maintains a direct link to the amortization of the original loan so as not to compromise the tax benefit. Every situation involving a change of ownership requires an analysis of the deduction's history in previous tax years.