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Practical Guide to Income Tax 2019.

Amounts paid during the year that are eligible for deduction

General rule

Subject to the general limit of 9,040 euros, the basis for the deduction consists ofthe amount paid by the taxpayer in the fiscal yearfor the acquisition or rehabilitation of the main residence, including the expenses and taxes arising from the acquisition that have been borne by the acquirer.

When the acquisition or rehabilitation is carried out with external financingThe financed amounts are understood to be invested as the loans obtained are amortized.

In these cases,The deduction will include both the amortization of the capital and the interest and other expenses derived from said financing. Among the latter, the following can be cited, among others:

  • The cost of instruments for hedging interest rate risk on mortgage loansregulated in article nineteen of Law 36/2003, of November 11, on economic reform measures (BOE of the 12th). In the case of the application of the aforementioned hedging instruments, the interest paid by the taxpayer will be reduced by the amounts obtained from the application of the aforementioned instrument.

  • Premiums for life and fire insurance contractsprovided that they are included in the conditions of the mortgage loans obtained for the acquisition or rehabilitation of the main residence.

They also form part of the basis for the deduction, regardless of whether or not external financing is used,the expenses and taxes arising from the acquisition that were borne by the acquirer, such as Property Transfer Tax and Stamp Duty, VATnotary and registration fees, agency fees, etc.

Note: according to the Forty-fifth Additional Provision of the Law PIT The following amounts will not be included in the base for the deduction for investment in main residence or for deductions established by the Autonomous Community:

  • The amounts paid by the taxpayer in 2019 due to the application of mortgage floor clauses, before the end of the self-assessment filing period. PIT through said exercise, an agreement is reached for the return of the same with the financial entity, or such return is due as a consequence of the execution or compliance with judicial sentences or arbitration awards.

  • Those amounts paid in previous years by the taxpayer in application of the floor clauses subject to the refund that are directly allocated by the financial entity in the year, after the agreement with the affected taxpayer, judgment or arbitration award, to reduce the principal of the loan.

Special rules

In addition to the general rule discussed above, the following special rules must be taken into account to determine the basis for the deduction, that is, the amounts invested with the right to deduct:

  • When a main residence is acquired having previously benefited from the deduction for the acquisition of other main residences.No deductions can be made for the acquisition or renovation of the new home until the amount invested in it exceeds the amounts invested in the previous ones that had benefited from the deduction.

  • When the transfer of the main residence would have generated a capital gain exempt due to reinvestment, the deduction base for the acquisition or renovation of the new main residence will be reduced by theamount of the exempt capital gain, and no deductions can be made until the amount invested exceeds the sum of the acquisition price of the previous homes, to the extent that it had benefited from a deduction, plus the exempt capital gain in the previous ones.

Similarly, whenThe transfer of the main residence would have generated a capital gain that was partially not subject to tax.by application of the ninth transitional provision of the Law of PIT (because the acquisition date is prior to December 31, 1994), the deduction for the acquisition of the new home cannot begin until the amount invested in it exceeds the amounts invested in the previous main homes, to the extent that they had benefited from the deduction, plus the capital gain that is exempt due to reinvestment.

The application of reduction or abatement coefficients to determine the portion of the capital gain obtained in the transfer of housing acquired before December 31, 1994 which is not subject to PITPursuant to the provisions of the ninth transitional provision of the Personal Income Tax Law, this is discussed in more detail in Chapter 11.