Other expenses necessary to obtain returns

Regulations: Articles 23.1 a) 2 to 4 Law IRPF and 13 b) ag) Regulation. Art. 15 Royal Decree-Law 35/2020, of December 22, on urgent measures to support the tourism, hospitality and commerce sectors and in tax matters (BOE of the 23rd)

1. Taxes, surcharges and fees

Non-state taxes and surcharges, as well as state fees and surcharges, are deductible, such as, for example, property tax, cleaning fees, garbage collection, lighting, etc., provided that:

They affect the computed returns or the assets or rights that produce them.
They are not of a punitive nature.

2. Amounts accrued by third parties as a result of personal services

Amounts accrued by third parties as direct or indirect compensation or as a result of personal services, such as administration, surveillance, concierge, garden care, etc. ## are deductible.

In particular, the fees of the community of owners when it comes to properties under a horizontal property regime.

3. Contract formalization and legal defense costs

Expenses incurred by the formalization of the lease, sublease, transfer or establishment of the right and those of legal defense related to the assets, rights or income are deductible.

4. Doubtful debts

In 2021, doubtful debts are deductible, provided that this circumstance is sufficiently justified. This circumstance is considered sufficiently justified:

When the debtor is in a situation of bankruptcy.
When more than three months have elapsed between the time of the first collection action carried out by the taxpayer and the end of the tax period, and no credit renewal has occurred.

Note: For the years 2020 and 2021, the period required for amounts owed by tenants to be considered as doubtful debts and to be deductible expenses is reduced from six months to three months. Furthermore, it is foreseen that this period may be modified by regulation (art. 15 of Royal Decree-Law 35/2020, of December 22, on urgent measures to support the tourism, hospitality and commerce sectors and in tax matters).

The operation of the deductibility of doubtful debt balances is conditional on the prior inclusion of their amount as full income from real estate capital, since these incomes are imputed to the tax period in which they are payable by their recipient, as provided in article 14.1.a) of the Tax Law.

When a doubtful balance is collected after its deduction, it will be computed as income in the year in which said collection occurs.

5. Insurance contract premiums

The premiums for insurance contracts, whether for civil liability, fire, theft, glass breakage or others of a similar nature on the assets or rights that produce the income are deductible.

6. Services or supplies

Amounts used for services or supplies (water, electricity, gas, internet, etc.) are deductible.

These expenses will only be deductible to the extent that they are effectively borne and paid by the lessor , such that, if it were the lessee who pays and bears them, the lessor could not deduct any amount. However, it must be taken into account that, if the amounts of these expenses are passed on to the tenant, they will be computed as full income from the real estate capital, being in turn deductible from said income.

7. Deductible expenses corresponding to rentals of premises to certain entrepreneurs during the 2021 tax period

Regulations: Additional Provision forty-ninth Law IRPF :

Landlords other than “large holders”, meaning a natural person who owns more than 10 urban properties, excluding garages and storage rooms, or a constructed area of more than 1,500 square meters, may consider in 2021 for the calculation of the real estate capital gains as a deductible expense the amount of the reduction in rental income that they have voluntarily agreed to as of March 14, 2020, corresponding to the monthly payments accrued in the months of January, February and March 2021.

See in this regard article 1.1 of Royal Decree-Law 35/2020, of December 22, on urgent measures to support the tourism, hospitality and commerce sectors and on tax matters.

To do this, you need to:

That you have signed a lease agreement for use other than housing, in accordance with the provisions of article 3 of Law 29/1994, of November 24, on Urban Leases, or industry,
That the tenant with whom the lease has been signed uses the property for the development of an economic activity classified in division 6 (Trade, restaurants and lodging, repairs) or in groups 755 (Travel agencies), 969 (Other recreational services, nec), 972 (Hair salons and beauty institutes) and 973 (Photographic services, automatic photographic machines and photocopying services) of the first section of the rates of the Tax on Economic Activities approved by Royal Legislative Decree 1175/1990, of September 28.

This expense will not be deductible, when the reduction in the rental income is subsequently compensated by the tenant through increases in subsequent rents or other benefits or when the tenants are a person or entity linked to the landlord within the meaning of article 18 of the Corporate Income Tax Law or are related to the landlord by ties of family, including the spouse, in a direct or collateral line, by blood or by affinity up to the second degree inclusive .

Income Tax Return 2021: The landlord must separately report the amount of this deductible expense in his her income tax return, also stating the tax identification number of the tenant whose rent has been reduced.

8. Other necessary tax-deductible expenses

In addition to the concepts specifically listed above, any other expenses are considered tax deductible provided they are necessary to obtain the corresponding income.

Important: in relation to the annual expenses referred to above, only and exclusively those expenses corresponding to the period of time in which the property is rented and generates income will be deductible, in the proportion that corresponds by virtue of the principle of correlation of income and expenses. Consequently, those generated during the time in which the property is not rented are not considered deductible for the purposes of article 23.1 of the Income Tax Law, even if it is available to be rented (in expectation of rent). Interpretative criteria established by the Supreme Court in Judgment number 270/2021, of February (ROJ: STS 910/2021).