When we acquire a home, we value all the expenses associated with its sale, among which are included, in addition to the mortgage, the taxes and procedures to be carried out at the notary’s office and at the Property Registry. Of course, we will also have to face other expenses such as bills, garbage taxes, community expenses or the IBI (Real Estate Tax).
What many people do not know is that, sometimes, these payments can also bring us some advantages on a tax level . This is known as “deductible expenses,” that is, expenses that are subtracted from a person’s gross income to calculate the benefit for tax purposes. Said in a simpler way, and above all practical, deductible expenses allow you to subtract a small amount from what corresponds to pay to the Treasury after making our Income Statement.
As you already know, at Sky Marketing we are experts in the real estate sector and we provide advisory services to our clients. Many of them ask us, precisely, what type of housing expenses are deductible on their annual Income Statement. But, can we deduct the same expenses in regular homes as in second homes? Are there limitations? How can we save and what are the deductible expenses for a second home?
What are deductible expenses?
In a generic way, deductible expenses are those necessary and essential for the performance of a professional or business activity. For example, for freelancers and companies, deductible expenses will be operating consumption, salaries and salaries of employees, leases and rentals of premises and offices, taxes and fees, independent professional services or amortizations.
For an expense to be deductible in the income statement of a self-employed or a professional, it must meet the following requirements:
- That is necessary to develop the professional activity.
- That it is correctly justified, with the corresponding full invoice.
- That it is duly accounted for in the professional’s account register.
- That it has been carried out in the tax period in question.
- That has its origin in patrimonial elements owned by the taxpayer and related to their economic activities.
- That it is reliable (that is, demonstrable).
- That complies with the principle of causality.
How is habitual residence taxed in the Income Tax Return?
Another important aspect before specifying what are the deductible expenses of a second home is to know how our habitual residence is taxed for tax purposes.
To begin with, the habitual residence must always be included in the annual income tax return, even if it does not generate any income and that, for this reason, there is no associated tax to pay. This is the first difference between the habitual residence and a second home at the tax level: in the second case, we will always have to pay said tax. We will also have to pay if we are landlords or if we want to sell it.
Currently, taxpayers who acquired their home before 2013 can also benefit from a deduction of 15% of their annual mortgage payments on their Income Statement, with a maximum of 9,040 euros per year.
How is a second home taxed?
When explaining how it is taxed and what are the deductible expenses of a second home, although we will always have to pay, different aspects will have to be taken into account. The most important is if the second home is rented and generates profits, or if we use it for personal enjoyment and, therefore, does not generate any income.
If the second residence is not rented, it is taxed on the general income tax base for the imputation of income. Therefore, the taxpayer / owner must pay a tax on 1.1% of the property’s cadastral value (2% if the cadastral value has not been revisited in the last decade).
In the case of obtaining a benefit (income) from a second residence because it is rented continuously, the property is taxed as a return on real estate capital and must be included in the general income tax base in the Declaration of these income. The deductible expenses of the second residence correspond to 60% of their net income.
When a second residence is intended for tourist rental, it is taxed in personal income tax according to the days it is rented. In this case, the owner cannot benefit from the 60% reduction and must also pay VAT, although other expenses may be deducted. The imputation will be proportional to the number of days that the property has not been rented.
Finally, and sporadically, the Personal Income Tax Law also provides for an additional reduction of 30% for those cases in which the landlord of his second residence obtains a notoriously irregular or generated property yield over a period of more than two years.
Deductible Second Home Expenses: Some Examples
Declare a second residence or a vacation residence in the Income is, as we have just explained, a tax obligation, although there are expenses that you can deduct from personal income tax. These deductibles second home expenses are:
- If you rent the second residence, you can deduct the mortgage, community expenses or those derived from reforms.
- If you rent the second residence to young people between 18 and 30 years old with a salary higher than the IPREM, you can deduct, in some cases, 100% of the net amount obtained from their rent.
- If, when applying the cadastral value in your second residence, you do not reach € 1,000 as a single annual income, you will not have the obligation to declare.
- If the second residence is an inheritance or a family transfer without cost, the property becomes taxed directly through the imputation of real estate income, to which we have alluded previously.
Taking this into account, the most common deductible expenses for a second home when rented are:
- Interest on loans or credits requested in order to acquire the property or improve the condition of the flat or house.
- Conservation and repair expenses to keep the property in good use (painting, installation repair, etc.). Deductible expenses for the second home will not be considered those derived from expansion or improvement works.
- Non-state taxes and surcharges (for example, community expenses) as long as they are not punitive.
- Amounts accrued by third parties and related to the maintenance of the good condition of the property (administrators, private security, porter service, gardening, etc.)
- Lease formalization costs (for example, hiring an advisor).
- Amount of insurance premiums such as liability, fire, theft, glass breakage, etc.
- Amounts destined for supply services such as electricity, water or gas.
- Amounts destined to the amortization of the property, provided that they do not annually exceed the result of applying 3% on the highest cadastral value.
Buying a vacation home is a dream for many people who want to enjoy a relaxing space in the mountains, on the beach or simply in a town outside their usual residence. However, fulfilling this dream can also be a “headache” when making the Income Tax Return.
On the Tax Agency website, you can obtain more information about the deductible expenses associated with a second home. And, if you wish, you can also contact us. At Tajarat properties we are your trusted online real estate agency !