First of all, these tax deductions are only available to residents and non-resident property owners from the EU. NOT to non-EU non-resident property owners.
You can only deduct a relevant part of yearly bills, like IBI etc. for the months the property was actually rented out. So if you rented it out a total of 3 months, you can deduct 25% of those bills as costs. To avoid suspicion and consequent requests from Hacienda to clarify it’s best to declare the total of your rental income as ‘rendimientos del capital inmobiliario’ and state the deductions separately. Those need to be properly documented, so receipts with IVA where applicable.
Over the remaining months, you will need to pay tax over ´imputed rental income´.
What kind of costs can you deduct?
- Interest payments on a mortgage, used to buy or reform the property for this specific purpose of holiday letting
- Home insurance
- Rubbish collection
- Community fees
- % depreciation of the property *
And, where applicable:
- utility bills if the rental price is all inclusive
- legal costs to draw up rental agreement
- any specific costs like travel costs re the signing of the rental agreement or to meet & greet guests
- Costs you can deduct 100%, so irrespective of the period the property was let, are invoices from an agent or other that functions as intermediary and any costs to advertise the property for holiday rental purposes.
* depreciation of the property – please note that if you make use of this deduction, that in case of a future sale of the property, the purchase price will be reduced by the amounts deducted for depreciation. This could mean that at your declaration of rental income, when making use of this deduction this could save you from paying 19% tax over this amount, but this same amount may be taxed as a capital gain in the future, possibly at a higher rate.
An example for a basic calculation:
Property on the beach that was rented out for 1.000 a month during the 3 summer months. Purchase price was 120.000 euros, discounting the value of the plot.
• Total income 3.000 euros
• IBI for one year 400 euros
• Annual interest on the mortgage ** 1.000 euros
• Garbage collection 100 euros/year
• Community fees 30 euros/month
• House insurance 120 euros/year
• Agency commission 160 euros
• Depreciation*** over 12 meses would be 3% over the 120.000 euros purchase price of the property, so 3.600 euros
So netto to declare that would amount to:
Income of 3.000 euros deducted by:
- 100 IBI (25%)
- 250 mortgage interests (25%)
- 25 garbage collection(25%)
- 90 community fees (3×30)
- 30 insurance (25%)
-160 Agency commission (100%)
- 900 depreciation (25%)
= 1.445 euros (netto result)
** If the actual mortgage payments (or relevant part thereof) are higher than the rental income, you cannot deduct any more than the amount of rental income, but any surplus you can deduct in the tax returns for the 4 years following the present one, provided you will receive sufficient rental income to set it off against, naturally.
*** The value used to calculate the depreciation is always the highest of either catastral value, or the purchase price.
For the remaining months of the year, you´ll need to declare imputed rental income. More info in this article on our website.
With thanks to Philip Carroll for fact checking and proof reading.