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Practical Guide to Income Tax 2025. Part 1.

Example: Deduction for energy rehabilitation works in buildings predominantly used for residential purposes

The community of owners of XXXX street number 23 has carried out a series of works to improve the energy efficiency of the building aimed at saving 50% of the energy consumed and achieving an improvement in the energy rating of the building to obtain an energy class "B". These works consist of improvements to the insulation of the façades, improvements to the thermal envelope, roofs and the breaking of thermal bridges, as well as the integration of renewable energy systems or installations into the building.

The works, which will be paid for by all owners (including commercial premises, residential properties, and garages) according to their participation quota, will begin in December 2024 and be completed in April 2025. A loan was requested to carry out the aforementioned works, which will be paid by the owners through monthly receipts. Once this financing has been obtained, the community of owners will make three payments for the improvement works. An initial payment, made on December 1, 2024, by nominative check, listed on the invoice issued by the contractor as "Certification on account of the energy efficiency improvement works contract," and two further payments to be made to the contractor on March 1 and May 1, 2025, respectively.

The couple formed by Mr. JG and Mrs. TK, married under the legal regime of community property, are owners of a home located in said community (their habitual residence) and by the coefficient of participation in said community they are entitled to, of the amounts paid (including the issuance of energy efficiency certificates), 8,000 euros of the first payment and 2,000 euros in the other two payments that will be paid by the Community of Owners to the contractor on March 1 and May 1, 2025.

The corresponding energy efficiency certificates were issued before and after the works. The latter was issued on December 20, 2025 and resulted in the home being rated as energy class "B".

Determine the amount of the deduction that can be claimed in 2025 and 2026 whether they opt for individual or joint declaration, and the excesses that can be deducted in the following years.

Solution: 

NOTE: Despite having paid amounts in 2024 for the completion of the works, he was not entitled to claim the deduction in that tax period because the certificate had not been issued. Since it was issued in the following tax period, 2025, the deduction will be applied in that subsequent tax period (2025) taking into consideration in this case the amounts paid on December 1, 2024 (8,000 euros) and those paid on March 1 and May 1, 2025 (2,000 euros on each of them).

Year 2025

Mr. JG:

  • Deduction base: (8,000 euros + 4,000 euros) ÷ 2 = 6,000

  • Maximum base: 5,000

  • Deduction amount = 5,000 x 60% = 3,000

  • Remaining deduction base, deductible in the following four years: 6,000 – 5,000 = 1,000 euros

  • Accumulated base: 15,000 – 5,000 = 10,000

Mrs. TK

  • Deduction base: (8,000 euros + 4,000 euros) ÷ 2 = 6,000

  • Maximum base = 5,000 euros

  • Deduction amount = 5,000 x 60% = 3,000

  • Remaining deduction base, deductible in the following four years: 6,000 – 5,000 = 1,000 euros

  • Accumulated base: 15,000 – 5,000 = 10,000

Joint JG and TK

  • Deduction base: 12,000 euros

  • Maximum base = 5,000 euros

  • Deduction amount = 5,000 x 60% = 3,000

  • Remaining deduction base, deductible in the following four years: 12,000 – 5,000 = 7,000 euros

  • Accumulated base: 15,000 – 5,000 = 10,000

Year 2026

A. Yes Don JG and Mrs. TK They file individual tax returns in that fiscal year 2027.

  1. When they filed an individual return in 2025

    • Outstanding amounts 2025: 1,000

    • Maximum deduction base (the smallest of):

      - Maximum annual base per declaration: 5,000

      - Accumulated base: 10,000

      - Amounts pending deduction: 1,000

    • Deduction amount = 1,000 x 60% = 600

    • Pending balance = 0

  2. When they filed a joint return in 2025

    • Outstanding amounts 2025: 7,000 euros ÷ 2 = 3,500

    • Maximum deduction base (the smallest of):

      - Maximum annual base per declaration: 5,000

      - Accumulated base: 10,000

      - Amounts pending deduction: 3.500

    • Deduction amount = 3,500 x 60% = 2,100

    • Pending balance = 0

B. Yes Don JG and Doña TK They will file a joint tax return in 2026.

  1. When they filed an individual return in 2025

    • Outstanding amounts 2025: 1,000 x 2 = 2,000

    • Maximum deduction base (the smallest of):

      - Maximum annual base per declaration: 5,000

      - Accumulated base [15,000 - 5,000 individual JG - 5,000 individual TK] = 5,000

      - Amounts pending deduction: 2,000

    • Deduction amount = 2,000 x 60% = 1,200

    • Pending balance = 0

  2. When in 2025 they filed a joint return

    • Outstanding amounts 2025: 7,000 euros

    • Maximum deduction base (the smallest of):

      - Maximum annual base per declaration: 5,000

      - Accumulated base: 10,000

      - Amounts pending deduction: 7.000

    • Deduction amount = 5,000 x 60% = 3,000

    • Pending balance = (7,000 - 5,000) = 2,000

    • Accumulated base: 10,000 – 5,000 = 5,000

    Note: Amounts paid but not deducted because they exceed the maximum annual deduction base (2,000 euros) may be deducted in the 2027 financial year.