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Practical Income Manual 2020.

Amounts paid in the year with the right to deduction

a. General rule

Subject to the limit of 9,040 euros, established in general, the base of the deduction is constituted by the amount paid by the taxpayer in year for the acquisition or rehabilitation of the habitual residence, including expenses and taxes arising from the acquisition that have been borne by the acquirer.

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

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

  • The cost of interest rate risk hedging instruments for mortgage loans regulated in article nineteen of Law 36/2003, of November 11, on economic reform measures ( BOE of 12). In the case of application of the aforementioned hedging instruments, the interests paid by the taxpayer will be reduced by the amounts obtained by the application of the aforementioned instrument.
  • The premiums for life and fire insurance contracts , provided that they are included in the conditions of the mortgage loans obtained for the acquisition or rehabilitation of the primary residence.

Also part of the basis of the deduction , regardless of whether or not external financing is used, are the expenses and taxes arising from the acquisition that have been borne by the acquirer , such as Tax on Property Transfers and Documented Legal Acts, VAT , notary and registration expenses, agency expenses, etc.

Note: in accordance with Additional Provision forty-fifth Law Personal Income Tax will not be included in the base of the deduction for investment in habitual residence or deductions established by the Autonomous Community the following amounts:

  • The amounts that, due to the application of floor clauses, would have been paid by the taxpayer in 2020, when before the end of the self-assessment submission period for Personal Income Tax for said year, an agreement to refund the amount is reached. the same with the financial entity, or such return proceeds as a consequence of the execution or compliance of 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 allocated directly by the financial institution in the year, after the agreement with the affected taxpayer, judgment or arbitration award, to reduce the principal of the loan. .

b. Special rules

In addition to the general rule previously mentioned, to determine the basis of the deduction, that is, the amounts invested with the right to deduction, the following special rules must be taken into account:

  • When a habitual residence is acquired having enjoyed the deduction for the acquisition of other previous habitual residences , no deductions may be made for the acquisition or rehabilitation of the new residence until the amount invested in it exceeds the amounts invested in the previous ones that would have enjoyed a deduction.
  • When the transfer of the habitual residence would have generated a capital gain exempt from reinvestment , the deduction base for acquisition or rehabilitation of the new habitual residence will be reduced by amount of the exempt capital gain, with no deductions being possible until the amount invested exceeds the sum of the acquisition price of the previous homes, to the extent that it had enjoyed a deduction, plus the exempt capital gain in the previous ones.

Likewise, when the transfer of the habitual residence would have generated a capital gain partially not subject by application of the ninth transitional provision of the Personal Income Tax Law (since the acquisition date was prior to December 31, 1994), the deduction for the acquisition of the new home cannot begin until the amount invested in it does not exceed the amounts invested in the previous habitual homes, to the extent in which they would have enjoyed a deduction, plus the capital gain that is exempt through reinvestment.

The application of the reducing or abatement coefficients to determine the part of the capital gain obtained in the transfer of homes acquired before December 31, 1994 that is not subject to IRPF by application of the provisions of the ninth transitional provision of the Personal Income Tax Law is discussed in more detail in Chapter 11.