The tax season has begun, and it's time to settle your debts with the Treasury. The deadline to do so is the 30th of June. However, every year, one of the main questions for owners of rental properties is the personal income tax deductions they can claim.
In this regard, it's essential to know that tax deductions apply also to improvements made to the property or its utilities.
Personal Income Tax Deductions for Net Rental Income
The new feature of the 2024 Income Tax campaign is that property owners can deduct up to 60% of the net rental income when the contract was signed before the 26th of May of 2023. For those signed after that date, the applicable Personal Income Tax deductions are as follows:
• 90% reduction if the property belongs to a stressed area with a price reduction of at least 5% compared to the previous contract (adjusted to the CPI).
• 70% reduction if the property belongs to a stressed area and the renters are between 18 and 35 years of age. Also, it must be their habitual residence. It also applies if the property is rented to the government or to entities participating in a public housing program that limits the rental income.
• 60% reduction if renovation work is carried out within the two years before the rental date to improve the property's energy efficiency.
• 50% reduction in all other cases.
Other Deductible Expenses for Renting a Home
Other personal income tax deductions can be applied to ease the tax burden for rental property owners. It's fundamental to keep them in mind because the final result of the tax return can vary significantly. These other deductible expenses are as follows:
• Amortization: This is the most significant deduction. It can reach up to 3% of the property's acquisition or cadastral value (excluding the land value). It applies as an expense for the property's amortization.
• Lease agreement formalization costs.
• Home insurance or default insurance costs for the property.
• Property maintenance and repair costs.
• Interest on loans or mortgages related to the purchase or maintenance of the property.
• Municipal taxes such as property taxes (IBI) or garbage collection fees.
• Community fees.
• Utility bills, as long as the owner retains ownership of these and is the one who pays them.
If in doubt, We recommend checking the Tax Agency's website. Another key recommendation is to keep all documentation supporting these expenses. The Treasury may request it in the event of a review or inspection.
Expenses We Cannot Include in Personal Income Tax Deductions
Some expenses may raise hesitations, but we cannot deduct them. These are:
• Expenses for renovations or expansions not related to maintenance of the property.
• New furniture can be deducted only when it replaces damaged furniture.
• Unjustified expenses or expenses not directly related to the rental.
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