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Practical Income Manual 2021.

Interest and other expenses for financing, conservation and repair of the property

Regulations: Articles 23.1 a) 1 Law Personal Income Tax and 13 a) Regulations

The following are considered included among the expenses necessary to obtain the returns, among others:

1. Interest and other financing costs

Interest and other financing expenses of third-party capital invested in the acquisition or improvement of the asset, right or power of use or enjoyment, as well as, where applicable, the assets transferred with it, are deductible.

Financing expenses are considered to include the life insurance premiums contracted with the financial institution that granted the loan for the acquisition of the property, provided that the contracting of said insurance is among the lender's conditions for granting it. That is, the consequence of not contracting the aforementioned life insurance must be the impossibility of accessing said loan.

The deductibility of these expenses only operates (due to the necessary correlation of expenses with income) with respect to the part of the tax period in which the home is rented, that is, they are calculated in proportion to the number of days of the tax period in which the home is rented.

Therefore, interest and other financing expenses corresponding to the period of time prior to the formalization of the lease contract will not be deductible.

Important:the interests that, due to the application of floor clauses, would have been satisfied by the taxpayer in 2021 and with respect to those that, before the end of the deadline for submitting self-assessment of personal income tax for said year ( June 30, 2022), the agreement to refund the amount is reached with the financial institution or as a consequence of a court ruling or an arbitration award, they cannot be deducted as an expense. See Chapter 2 .

2. Conservation and repair

The costs of conservation and repair of the assets that produce the income are deductible. For these purposes, they have this consideration:

  1. Those carried out regularly with the purpose of maintaining the normal use of material assets, such as painting, plastering or repairing facilities.

  2. Those for replacing elements, such as heating installations, elevators, security doors or others.

The amounts intended for the expansion or improvement of the assets are not deductible for this concept, as they constitute a greater acquisition value whose recovery is carried out through the corresponding amortizations.

The deductibility of pre-lease expenses is conditional on obtaining income, that is, full returns on real estate capital: those arising from the lease or the constitution or transfer of rights or powers of use or enjoyment of real estate or real rights that rest on them.

The existence of a correlation between conservation and repair expenses and the income derived from the subsequent rental of the home means that the conservation and repair expenses incurred on a property for the purpose of renting it (that is, those incurred in the period of time prior to the formalization of the lease contract) will be considered deductible for the determination of the net return on the real estate capital, provided that they are directed exclusively to the future obtaining of returns on the real estate capital (through the lease or the constitution or transfer of rights of use and enjoyment) and not to the enjoyment, even temporary, of the property by the owner. If in the year in which the expenses are incurred the taxpayer does not obtain income from the real estate capital derived from the property, the repair and conservation expenses may be deducted in the following four years, respecting each year the legally established limit. 

Maximum deduction limit for the two previous concepts of necessary expenses

The following must be taken into account:

a) The maximum total amount to be deducted for interest and other financing expenses and for maintenance and repair expenses may not exceed, for each asset or right, the amount of the full returns obtained.

The excess may be deducted in the following four years, without exceeding, together with the expenses for these same concepts corresponding to each of these years, the amount of the full returns obtained in each of them, for each asset. or right.

b) The amount pending deduction for the years 2017, 2018, 2019 and 2020 will be applied in the declaration of 2021 with priority to the amounts that correspond to the fiscal year 2021 for these same concepts. The amount to be deducted will be stated in box [0104] of the declaration.

For its part, the amount corresponding to the year 2021 that is applied in the declaration will be indicated in box [0107] and the amount that, due to the application of the maximum deduction limit, remains pending deduction will be recorded in box [0108 ] for the purposes of deduction in the following four years.

In the event that there are several lease contracts in the year for the same property, the maximum limit of the amount to be deducted for interest and conservation and repair expenses must be computed taking into consideration the amounts paid in the year and the full income obtained. in it, so, for some of the lease contracts, the amount deducted for interest and conservation and repair expenses could exceed the income obtained.