Amounts intended for amortization
Regulations: Articles 23.1 b) Law Personal Income Tax and 13 h) and 14 Regulation Income Tax
The amounts allocated to the depreciation of the property and the other assets transferred with it are considered deductible expenses, provided that they correspond to its effective depreciation.
Amortization is the way to take into account the depreciation suffered by the properties that generate income due to use or the passage of time.
Regarding the calculation method to consider that amortization responds to effective depreciation, we must distinguish:
In the case of real estate, amortizations will be considered to meet the effectiveness requirement when, in each year, they do not exceed the result of applying the percentage of 3 per 100 to the highest of the following values:
a. Satisfied acquisition cost, which will be:
In the case of properties acquired for onerous title: the acquisition price, including the expenses and taxes inherent to the acquisition (notary, registration, non-deductible VAT , Tax on Property Transfers and Documented Legal Acts, agency expenses, etc.) without include in the calculation the value of the land, as well as the cost of the investments and improvements made to the acquired assets.
In the case of properties acquired under free title by inheritance or donation: the value of the property acquired in application of the Inheritance or Donation Tax rules or its value verified in these levies (excluding the value of the land from the calculation), plus the expenses and taxes inherent to the acquisition that correspond to the construction and, in If applicable, all of the investments and improvements made in the acquired assets.
Interpretative criterion established by the Supreme Court (Litigation-Administrative Chamber) in its Sentence number 1130/2021, of September 15 (ROJ: STS 3483/2021).
b. Cadastral value, excluding the value of the land.
When the value of the land is not known, it will be calculated by prorating the acquisition cost paid between the cadastral values of the land and the construction of each year reflected in the corresponding Real Estate Tax (IBI) receipt.
Limit of accumulated amortization of real estate
The limit of accumulated amortization will be the acquisition value of the property generating the income. Therefore:
In the case of goods acquired for consideration , the accumulated amortization may not exceed their acquisition value in accordance with article 35 of the Personal Income Tax Law ( excluded from the calculation the value of the land).
In accordance with the aforementioned article 35 of the Personal Income Tax Law the acquisition value will be formed by the sum of:
The actual amount for which said acquisition would have been made.
The cost of the investments and improvements made in the acquired assets and the expenses and taxes inherent to the acquisition, excluding interest, that would have been paid by the acquirer.
In the case of properties acquired for profit , the limit of accumulated amortization, in global calculation, may not exceed the acquisition value in the terms of article 36 of the Personal Income Tax Law (the value of the land is excluded from the calculation).
According to article 36 of the Personal Income Tax Law, in these cases the actual amount of the respective values will be taken as those resulting from the application of the Inheritance and Donation Tax rules, without exceeding the market value.
Don RRR acquired by inheritance a property whose value attributed in the settlement of the Inheritance and Donations Tax (ISD) and which appears in the public deed of inheritance award was 100,000 euros.
The expenses and taxes inherent to the acquisition (notary, registry, ISD) amount to 2,000 euros.
The cadastral value of the inherited property: 80,000 euros.
The percentage that the value of the land represents with respect to the total value of the property is 20 percent.
Once inherited, the property was leased to third parties.
Calculate the depreciation corresponding to a rented property and the deductible accumulated depreciation limit.
1. Amortization calculation.
The highest of the following values will be taken for the calculation of amortization
- Satisfied acquisition cost: 80% s/(100,000 + 2,000) = 81,600
- Cadastral value excluding the value of the land: (80% of 80,000) = 64,000
The amount of amortization deductible as an expense to determine the return on real estate capital may not exceed the result of applying the percentage of 3 percent to the highest of the above values. In this case it will be the acquisition cost paid that includes the value attributed in the settlement of the Inheritance and Donation Tax plus the expenses and taxes inherent to the acquisition (excluding the value of the land from the calculation).
Therefore, in this case the amount of the maximum deductible annual amortization will be 3% s/81,600 euros = 2,448 euros
2. Accumulated amortization limit.
The taxpayer may amortize the property until the amount of the accumulated amortization reaches the acquisition value of the property which, in accordance with the provisions of article 36 of the Personal Income Tax Law, is the value of the property for ISD purposes (excluding from the calculation the value of the land) plus taxes and expenses inherent to the transfer, that is, 80% x (100,000 + 2,000) = 81,600 euros.
Remember: In the event that the property had not been leased throughout the year, the deductible amortization, interest and other financing expenses, insurance premium expenses, community expenses, Real Estate Tax, supplies, etc., will be those that correspond. to the number of days of the year in which the property has been rented.
In the periods in which the property has not been leased, the amount resulting from applying 2 percent or 1.1 percent, as appropriate, to the cadastral value of the property, which proportionally corresponds to the number of days included in said period, in accordance with the provisions of article 85 of the Personal Income Tax Law .
• Assets of a movable nature transferred together with the property
They will be amortized as long as they can be used for a period of time greater than one year.
It will be understood that the deductible annual amortization for each of the transferred assets meets the effectiveness requirement, when its amount does not exceed the result of applying the corresponding amortization coefficients to their respective acquisition costs satisfied in accordance with simplified amortization table approved by Order of March 27, 1998.
This table includes, among others, the following maximum amortization coefficient, which for Installations, furniture and fixtures is 10 per 100.
• Rights or powers of use or enjoyment of real estate
They will be amortized as long as their acquisition has entailed a cost for the taxpayer. In these cases it is necessary to distinguish:
If the right or power has a specific duration, the deductible annual amortization will be the result of dividing the acquisition cost paid by the number of years of its duration.
If the right or power were for life, the computable amortization will be the result of applying the 3 percent coefficient on the acquisition cost paid.
In both cases, the amount of deductible amortizations in the year may not exceed the amount of the full income derived from each right.
Don AST acquired the usufruct right over a property through purchase and sale for a period of 10 years, paying the amount of 100,000 euros. During 2022, said property has been leased, receiving an annual rent of 20,000 euros.
Calculate the depreciation corresponding to a property that is rented.
- Acquisition cost / duration of usufruct (100,000 ÷ 10 years) = 10,000
- Limit of full income from the right: Annual rental income = 20,000
Full ownership and usufruct over a property .In cases where a taxpayer is the owner of 50% of the full ownership of a property intended for rental and has usufruct over the remaining 50%, the amortization expense will be calculated differently for the part of the property of which is the full owner and the part of which is the usufructuary, taking into account the rules that were previously indicated for each of them.