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Practical Income Manual 2019.

Amounts intended for amortization

Regulations: Articles 23.1 b) Law Personal Income Tax and 13 h) and 14 Regulations

The amounts allocated to the depreciation of the property and the other assets transferred with it are considered deductible expenses, provided that they correspond to its effective depreciation.

  • Real estate

    In the case of real estate, amortizations will be considered to meet the effectiveness requirement when, in each year, they do not exceed the result of applying the percentage of 3 per 100 to the highest of the following values.

    1. Acquisition cost paid , including expenses and taxes inherent to the acquisition (notary, registration, non-deductible VAT , Property Transfer Tax and Legal Acts Documented documents, agency expenses, etc.) without including in the calculation the value of the land, as well as the cost of investments and improvements made to the acquired assets.

      In the acquisition of real estate by inheritance or donation, only the part of the expenses and taxes inherent to the acquisition that corresponds to the construction and, where appropriate, all of the investments and improvements will be considered as "paid acquisition cost." carried out.

    2. Cadastral value, excluding the value of the land.

    When the value of the land is not known, it will be calculated by prorating the acquisition cost paid between the cadastral values of the land and the construction of each year reflected in the corresponding receipt of the Real Estate Tax (IBI).

    Limit of accumulated amortization of real estate

    The limit of accumulated amortization will be the acquisition value of the property generating the income. Therefore:

    • In the case of goods acquired for consideration, the accumulated amortization may not exceed the acquisition cost of the property, which corresponds to its acquisition value in accordance with article 35 of the Personal Income Tax Law (the value of the land is excluded from the calculation).
    • In the case of properties acquired for profit, the limit of accumulated amortization, in global calculation, may not exceed the acquisition value in the terms of article 36 of the Personal Income Tax Law, and excluding the value of the land from the calculation.

    Example:

    Don RRR acquired by inheritance a property whose value attributed in the settlement of the Inheritance and Donations Tax (ISD) and which appears in the public deed of inheritance award was 100,000 euros.

    The expenses and taxes inherent to the acquisition (notary, registry, ISD) amount to 2,000 euros.

    The cadastral value of the inherited property: 80,000 euros.

    The percentage that the value of the land represents with respect to the total value of the property is 20 percent.

    Once inherited, the property was leased to third parties.

    Calculate the depreciation corresponding to a rented property and the deductible accumulated depreciation limit.

    Solution:

    1. Amortization calculation .

      The highest of the following values will be taken for the calculation of amortization

      • Satisfied acquisition cost: (80% s/2,000) : 1,600
      • Cadastral value excluding the value of the land: (80% s/ 80,000) : 64,000

      The amount of amortization deductible as an expense to determine the return on real estate capital will be the result of applying the percentage of 3 percent on the highest of the previous values, in this case the cadastral value excluding the value of the land.

      Therefore, in this case the deductible amortization amount will be 3% s/64,000 euros = 1,920.00 euros

    2. Accumulated amortization limit.

      The taxpayer may depreciate the property until the amount of accumulated depreciation reaches the value of the property for ISD purposes (excluding the value of the land from the calculation), that is, 80% x (100,000 + 2,000) = 81,600 euros.

  • Assets of a movable nature transferred together with the property

    They will be amortized as long as they can be used for a period of time greater than one year.

    It will be understood that the deductible annual amortization for each of the transferred assets meets the effectiveness requirement, when its amount does not exceed the result of applying the corresponding amortization coefficients to their respective acquisition costs satisfied in accordance with simplified amortization table approved by Order of March 27, 1998.

    This table includes, among others, the following maximum amortization coefficient: Facilities, furniture and fixtures: 10 per 100.

  • Rights or powers of use or enjoyment of real estate

    They will be amortized as long as their acquisition has entailed a cost for the taxpayer. In these cases it is necessary to distinguish:

    1. If the right or power has a specific duration, the deductible annual amortization will be the result of dividing the acquisition cost paid by the number of years of its duration.
    2. If the right or power were for life, the computable amortization will be the result of applying the 3 percent coefficient on the acquisition cost paid.

    In both cases, the amount of deductible amortizations in the year may not exceed the amount of the full income derived from each right.

Note: In the event that the property had not been leased throughout the year, the deductible amortization, interest and other financing expenses, insurance premium expenses, community expenses, Real Estate Tax, supplies, etc., will be those that correspond. to the number of days of the year in which the property has been rented.

In the periods in which the property has not been leased, the amount resulting from applying 2 percent or 1.1 percent, as appropriate, to the cadastral value of the property, which proportionally corresponds to the number of days included in said period, in accordance with the provisions of article 85 of the Personal Income Tax Law .