The repair and maintenance expenses made in a house can not be added to the acquisition value, but the extensions or improvements can, for the purposes of calculating the capital gain or loss in personal income tax.
It is necessary to review all the expenses that must be taken into account at the time of selling a property, to determine the acquisition value taking into account in the calculation of the capital gain or loss that may be generated, and especially, in analyzing the difference between the types of renovation works that can be reduced from the acquisition value and those that can not.
The General Directorate of Taxes (DGT) clarifies that, depending on the nature of the renovation works carried out in a house, they may be classified as improvements or expansion, in which case they must be taken into account when calculating the acquisition value of the property transferred, adding, or, of maintenance or repair costs , which shall not be taken into account in this calculation.
In addition, if the property has been leased, the amount of the tax deductible depreciation must be taken into account, counting in any case the minimum amortization regardless of its effective consideration as an expense, which will reduce the acquisition value of the property when calculating the corresponding capital gain or loss.
In accordance with personal income tax regulations, the acquisition value includes the “improvements made to housing”, but the concept does not define it, having to resort to the Resolution of March 1, 2013, of the Institute of Accounting and Audit of Accounts, by which rules are issued for the registration and valuation of tangible fixed assets and real estate investments.
This Resolution defines “improvement” as the set of activities through which there is an alteration in an element of the fixed assets, increasing its previous productive efficiency.
The Resolution also defines the concept of “enlargement“ as a process by which new elements are incorporated into a fixed asset, resulting in greater productive capacity.
Based on these definitions, it must be understood that repairs and conservations are those intended to maintain the useful life of the property and its productive or use capacity, while extensions or improvements can be considered as those that result, either in an increase in the capacity or habitability of the property, or in an extension of its useful life.
On the contrary, the expenses of repair and maintenance of the house that are included in article 13 of the Personal Income Tax Regulations as deductible expenses in the determination of the return on real estate capital, are not part of the acquisition value.
Finally, and from the perspective of the transfer value, simply mention that the expenses incurred to proceed with the sale of a property, as soon as they are inherent to the transfer, will affect the transfer value through its deductibility.
If you have any questions or need any clarification about it, you can contact any of our advisors to help you resolve it.