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Practical Income Manual 2021.

Other expenses necessary to obtain returns

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

1. Taxes, surcharges and fees

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

  1. They affect the computed returns or the goods or rights producing them.

  2. They do not have a sanctioning nature.

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

Amounts accrued by third parties in direct or indirect consideration or as a consequence of personal services, such as administration, security, concierge, garden care, etc are deductible. ##2##.

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

3. Expenses for formalizing the contract and legal defense

Expenses incurred by the formalization of the lease contract, sublease, assignment or constitution of the right and those of legal defense relating to the assets, rights or income are deductible.

4. Doubtful balances

Doubtful balances are deductible in 2021, as long as this circumstance is sufficiently justified. This circumstance is considered sufficiently justified:

  1. When the debtor is in bankruptcy.

  2. When more than three months have passed between the time of the first collection process carried out by the taxpayer and the end of the tax period, and a credit renewal has not occurred.

    Note: For the years 2020 and 2021, the period required for the amounts owed by tenants to be considered doubtful balances and may be deductible expenses is reduced from six months to three months. In addition, the possibility 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 sector and in tax matter).

The operation of the deductibility of doubtful balances is conditioned on the prior inclusion of their amount as full income from real estate capital, since these income are attributed to the tax period in which they are payable by the recipient, as provided in article 14.1. a) of the Personal Income 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

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

6. Services or supplies

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

These expenses will only be deductible to the extent that they are effectively supported and paid by the lessor , in such a way that, if it were the lessee who pays and bears them, the lessor will not no amount could be deducted. 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 a full return on the real estate capital, and will, in turn, be deductible from said return.

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

Regulations: Additional Provision forty-ninth Law Personal Income Tax :

Lessors other than “large holders”, understood as the 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, can be counted in 2021 for the calculation of the return on real estate capital as a deductible expense the amount of the reduction in rental income that they had voluntarily agreed upon 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 sector and on tax matters.

 For this it is necessary:

  1. Who has signed a lease contract 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,

  2. That the tenant with whom the lease contract has been signed allocates the property to the development of an economic activity classified in division 6 (Commerce, restaurants and lodging, repairs) or in groups 755 (Travel agencies), 969 (Other services recreational, nec), 972 (Hairdressing 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 , September 28.

This expense will not be deductible, when the reduction in the rental rent 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 lessor within the meaning of article 18 of the Corporate Tax Law or are united with him by ties of kinship, including the spouse, in a direct or collateral line, consanguineous or by affinity up to the second degree inclusive .

Income Tax Declaration 2021: The lessor must report separately in its personal income tax return the amount of this deductible expense, also stating the tax identification number of the lessee whose rent had been reduced.

8. Other necessary tax-deductible expenses

In addition to the concepts specifically listed above, any other expense is considered tax deductible as long as it is necessary to obtain the corresponding income.

Important: in relation to the annual expenses referred to with above, only and exclusively the expenses corresponding to the period of time in which the property is rented and generates income will be deductible, in the corresponding proportion in virtue of the principle of correlation of income and expenses. Consequently, they are not considered deductible expenses for the purposes of article 23.1 of the Income Tax Law , those generated during the time in which the property is not rented, even if it is available be able to be rented (in expectation of rent). Interpretative criterion established by the Supreme Court in Sentence number 270/2021, of February 25 (ROJ: STS 910/2021).