What expenses can I deduct for a rented-out flat?

Question

José Manuel Alburquerque · Accepted Answer

All the expenses needed to keep the flat let, provided that they relate to the time it has been let and you can document them. The most common are the IBI, the local property tax, service charges, insurance, repairs, loan interest, the property manager's fees and depreciation, 3 % a year of the value of the building. Interest and repairs together cannot exceed what you received from that flat in the year, although any excess is deducted over the following four years. Improvement works are not deducted all at once but depreciated. What can be deducted The IBI, the waste collection charge and the other taxes on the flat that you pay, except penalties. Service charges (owners' association fees). Premiums for insurance on the flat, such as home insurance or rent guarantee insurance that you take out. Repairs and maintenance, such as painting, fixing the installations or replacing the boiler with a similar one. Extending the flat or adding a bathroom is an improvement, which is depreciated. Interest on the loan with which you bought or improved the flat and its other financing costs. Not those for the period before the letting. Third-party services, such as the property manager or the porter. The costs of drawing up the contract, such as the letting agent's fees, which today are always paid by the landlord. Also lawyer's and court agent's (“procurador”) fees for claiming against the tenant or evicting them. Rent you do not collect, if the tenant is in insolvency proceedings or if, at the end of the year, more than six months have passed since you first claimed it without agreeing a deferral. It must first have been declared as income. If you collect it later, it is income for that year. Utilities, only if you pay them. If the tenant reimburses you for them, what they pay you is income. Depreciation This is what the law lets you deduct each year for wear and tear on the flat, 3 % of the higher of these two values, never counting the land: What the flat cost you, including the costs and taxes of the purchase, such as the notary's fees or transfer tax (“impuesto de transmisiones”). If you inherited it or were given it, the value on which you paid the “impuesto de sucesiones”, the Spanish inheritance tax, or the “impuesto de donaciones”, the Spanish gift tax, plus the costs and taxes you paid on receiving it. The cadastral value (the “valor catastral”) of the building, which appears on the IBI bill. If you do not know what the land is worth, what the flat cost is split using the ratio between the value of the land and that of the building shown on the IBI bill. In an example given by the “Agencia Tributaria”, Spain's tax authority, an inherited flat was declared at 100.000 euros, with 2.000 of costs. It has a cadastral value of 80.000, of which 20 % is land. Without the land, the cost is 81.600 euros and the cadastral value 64.000, so 2.448 euros are deducted each year, 3 % of the higher figure. Improvements are added to that value and furniture is depreciated separately, at up to 10 % a year. The limits The limit on interest and repairs is applied flat by flat. Any excess is deducted over the following four years, always within what is received each year. Other expenses have no limit and can leave the letting with a loss, which is offset against your other income. Only the expenses for the days on which the flat has been let count, including depreciation. Those for the time it has been empty are not deducted, even if it was advertised for letting. Repairs carried out to prepare the flat before letting it are deductible, including over the following four years if there was no letting that year.