If you have a property that you have inherited, you can increase the deductible depreciation expense by its "acquisition value", according to a Supreme Court ruling.
This court, in a recent ruling of 15-9-2021, has established that the deductible expense in Personal Income Tax for depreciation, when renting a property that has been acquired by inheritance or donation, must be calculated on the real value of the property, declared or verified in the Inheritance and Gift Tax (ISyD), and not on the value of the expenses and taxes paid for the acquisition.
Property depreciation is one of the most common expenses that taxpayers can deduct.
A deduction of 3% of the acquisition cost paid, or of the cadastral value, is allowed for income obtained from the rental of a property. The fact is that, except in cases of very low acquisition values, this percentage will always be applied to the acquisition cost. Normally, the latter is much higher than the cadastral value.
The problem, however, arises in the case of properties acquired free of charge, by inheritance or donation. And it is that, in this case, the Administration has been maintaining that the cost of acquisition satisfied is constituted by the amount of the expenses and taxes of the acquisition. Click here to see our tax advice page.
The SCJ held that for them, the "acquisition cost paid" should be, in these cases, the value declared for the property for ISyD purposes.
This "acquisition cost paid" (or the one verified by the Tax Authorities, in the event that this value has been subject to regularization) also includes the expenses and taxes inherent to the acquisition (ISD, notary, registry, etc. corresponding to the building). According to the Tax Authorities, the municipal capital gain paid by the heir cannot be computed, since it is a cost attributable to the acquisition of the land (and not of the building).
The Court's argument is that the concept of depreciation is linked to a value and not to a cost.
Otherwise, there would be an inconsistent treatment depending on whether a property had been acquired for profit or against payment, and the law does not intend such a distinction. Moreover, the value declared in the ISD is part of the acquisition value for the purposes of a subsequent sale and must form part of the basis for calculating the depreciation.
The ruling will make it possible to request the rectification of self-assessments submitted in the last four years, and the refund of undue income. At this moment, it is still possible to request the rectification of the 2017, 2018, 2019 and 2020 tax years.
It is true that before launching a claim to the Treasury, it is necessary to assess each particular case. Establishing an approximation of the amount to be claimed is essential to determine whether or not to initiate this process, and at Confialia we are prepared to do so.