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Practical manual for Income Tax 2021.

Amounts paid with the right to deduction and maximum deductible base

Deduction base

Subject to the limit of 9,040 euros, the base of the deduction is constituted by the amounts paid by the taxpayer in year for the acquisition, construction, rehabilitation and extension of the habitual residence, including the expenses and taxes incurred that have been borne by the taxpayer, such as Tax on Property Transfers and Documented Legal Acts, VAT , architect and surveyor fees, construction license, declaration of new construction , notary and registration expenses, agency expenses, etc.

In the case of investment through external financing , the deduction will be applied as the principal of the loan is repaid and, where applicable, the corresponding interest is paid, provided that all the requirements for applying the deduction are met.

The novation, subrogation or replacement of a loan or credit for another, including its extension, whatever the agreed form -with the guarantees and conditions that any of them have-, does not imply understanding that at that moment the financing process of the corresponding investment concludes or that the possibilities of practicing the deduction are exhausted. It only involves modifying the financing conditions initially agreed upon, provided that, obviously, the resulting loan is actually used to repay the previous loan.

Therefore, the annuities (amortization and interest rate) and other amounts paid for the resulting loan or credit - in its constitution, life and cancellation -, in the proportional part that, of the total capital obtained in it, is attributable to the amortization or cancellation of the original loan - when this has been exclusively used to acquire the habitual residence -, including, where appropriate, the mortgage registration cancellation, will give the right to a deduction for investment in habitual residence, forming part of the deduction base for the tax period in which they are paid, provided that the other legal and regulatory requirements are met. In the case of an increase in the principal, if the entire amount is used to cover the costs associated with the cancellation of the original loan, it may also be subject to deduction. On the other hand, the proportional part of the indicated annual payments that correspond to the increase in the principal, which would have been used to finance things other than the acquisition of the home itself, whatever it may be, will not be eligible to be included in the deduction base.

Regarding the new loan or credit, the taxpayer must be able to prove that it is used for housing and provide proof of its repayment.

In the case of a taxpayer who, pursuant to a divorce court ruling, makes full payments on the loan for the acquisition of a primary residence that was jointly granted to both spouses and for the amortization of which both spouses were applying the deduction for the acquisition of a primary residence before 1 January 2013, he or she is entitled to apply said deduction for the full amount paid for such purpose even if he or she only owns 50% of the residence because the joint property has not been settled, both in the case that the residence continues to have the status of primary residence for him or her and the common children and in the case that the residence has said status for the common children and the other parent. See in this regard the Resolution of the TEAC of November 23, 2021, Claim number 00/00629/2021 , issued in an extraordinary appeal for unification of criteria. 

In these cases, will form part of the basis of the deduction, in addition to the amortization of the capital and the interest, the other expenses derived from said financing among which the following can be mentioned:

  • The cost of the 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 the 12th). In the case of application of the aforementioned hedging instruments, the interest paid by the taxpayer will be reduced by the amounts obtained by the application of the aforementioned instrument.

  • Premiums for life and fire insurance contracts , provided that they are included in the conditions of mortgage loans obtained for the acquisition (or, where appropriate, for the construction), rehabilitation or extension of the habitual residence.

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

  • The amounts that would have been paid by the taxpayer in 2021 due to the application of floor clauses, when before the end of the deadline for filing the self-assessment of IRPF for said year, an agreement is reached to return them with the financial institution, or such return proceeds as a consequence of the execution or compliance with court rulings or arbitration awards.

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

Maximum deductible investment base

Regulations: Art. 68.1 1 Law IRPF , edited on 31-12-2012

The maximum deduction base for investments in the acquisition, rehabilitation or expansion of the habitual residence is 9,040 euros per year .

This limit will be unique for the set of investment concepts mentioned and will be applied in the same amount in joint taxation .

Any excess of the amounts invested over said amounts cannot be carried over to future years.

In the event of the termination of a joint ownership of a primary residence as of 1 January 2013, if one of the parties obtains 100% of the residence, they will be entitled to apply 100% of the deduction for the acquisition of a primary residence, up to a total of 9,040 euros as a base, provided that said deduction was applied in a year prior to 2013 in the percentage corresponding to their participation in the joint ownership.

In this case, the application of the deduction for the acquired part until completing 100% of the full ownership of the property will have as a limit the amount that the co-owner who ceases to be the owner of the property would have had the right to deduct from the date of termination of the condominium if said termination had not taken place. The deduction will also be conditional on the fact that the co-owner who ceases to be the owner has not exhausted the possibility of continuing to apply the deduction for the acquisition of a habitual residence by the date of termination of the condominium. See in this regard the Resolution of the TEAC of October 1, 2020, Claim number 00/00561/2020, filed in an extraordinary appeal for unification of criteria.