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Practical manual for Income Tax 2023.

8. Compensation or insured capital for losses or incidents in assets

Regulations: Art. 37.1.g) Law Income Tax  

Specific valuation standard

In the case of compensation or insured capital for losses or incidents in assets, the difference between the following will be computed as capital gain or loss:

  • The amount received as compensation , and

  • The proportional part of the acquisition value that corresponds to the damage .

When the compensation is not in cash, the difference between the market value of the goods, rights or services received and the proportional part of the acquisition value that corresponds to the damage will be calculated.

Capital gains will only be computed when they result in an increase in the value of the taxpayer's assets. Consequently, in all those cases in which only the repair of the damage is covered, no capital gain will be computed for tax purposes.

Example: Compensation or insured capital for losses or incidents in assets

Mr. SMG has been the owner of a villa since 1990, purchased for an amount equivalent to 150,300 euros, including the expenses and taxes inherent to the acquisition paid for it.

On 8 September 2023, as a result of a fire that broke out in the chalet, it was completely destroyed, with the insurance company paying the sum of 89,800 euros. According to the specifications of the IBI receipt, the value of the land represents 40% of the total cadastral value of the same.

Determine the amount of capital gain or loss obtained.

Solution:

  • Compensation received: 89,800

  • Proportional part of the acquisition value that corresponds to the damage (1): 90.180

  • Capital loss (89,800 - 90,180) = -380

Note to example:

(1) The determination of the proportional part of the acquisition value that corresponds to the damage is determined by applying the percentage of 60% to the acquisition value of the chalet (150,300 x 60%) = 90,180. (Back)