Verification of the financial situation: effective deductible investment base
Regulations: Art. 70.1 Law IRPF , edited on 31-12-2012
Without prejudice to the existence of maximum deduction bases for the different investment concepts in the terms discussed above, the effective enjoyment of the deduction for investment in habitual housing is conditional on the verified amount of the taxpayer's assets at the end of the tax period exceeding the value shown by its verification at the beginning of the same by at least the amount of the investments made, without taking into account the interest and other financing costs.
The purpose of checking the financial situation is to ensure that investments in habitual residence and in new or recently created companies with the right to deduction are made with the income generated in the period, avoiding deductions being made with respect to amounts that correspond to income generated in previous periods.
The comparison of the assets at the end and at the beginning of the tax period will be carried out based on the acquisition value of all the assets and rights that make up the taxpayer's assets, including those exempt from the Wealth Tax, without taking into account, therefore, the changes in value experienced during the tax period by the assets that at the end of the same continue to form part of the taxpayer's assets.
Notwithstanding the foregoing, in the case of rehabilitation or extension of the habitual residence , the investments made in the year will be valued in the final assets independently of the residence.
Similarly, in the case of works and installations to adapt the habitual residence for reasons of disability, the amounts paid to cover these works must be included in the valuation of the final assets of the tax period, both in the event that the latter are considered an investment (those carried out on the taxpayer's habitual residence) and as expenses (those carried out on the residence rented or subleased by the taxpayer).
In the event that the increase in assets at the end of the tax period is less than the amount invested or the amount of the adaptation works and installations carried out for reasons of disability, without including within these the interest and other financing costs, the deduction for investment in housing or for adaptation works and installations thereof may only be made on the amount by which the taxpayer's assets have increased, increased by the interest and other financing costs paid.
Example
Mr. AGE, acquired his habitual residence on 30-11-2003 for a total price of 150,000 euros. This property was partly financed with a mortgage loan of 120,000 euros.
In the 2020 financial year, Mr. AGE has invested 9,000 euros in his habitual residence, of which 1,000 euros correspond to interest on the loan and the rest to repayment of the principal.
The taxpayer's assets, as of 01-01-2020, consisted of the home; shares in an investment fund valued at 55,200 euros; a bank account with 5,700 euros and a car purchased in 2018 for 25,242 euros and currently valued at 21,035 euros. The amount of the outstanding loan at that date was 95,000 euros.
The assets, as of 31-12-2020, consist of housing, investment funds whose net asset value as of that date amounts to 52,200 euros; 3,000 euros in the bank account and the car, whose value at that date is estimated at 15,625 euros.
In 2020, he obtained employment income of 54,000 euros.
Determine whether the requirement of proven increase in assets in the amount of the investment is met.
Solution:
a. Final assets (31-12-2020) = 66,000
- Housing (150,000.00 – 87,000.00) = 63,000
- Bank account: =3,000
b. Initial equity (01-01-2020) = 60,700
- Housing (150,000.00 – 95,000.00) = 55,000
- Bank account = 5,700
Increase in assets = 5,300
Investment made in 2020 = 9,000
Effective deductible investment base (increase in assets without taking into account interest and other financing costs) = 5,300
Note to example:
The interest on the loan (1,000 euros) must be added to the effective deductible investment base (5,300 euros) and the result (6,300 euros) will be the amount of the deduction base that corresponds to the taxpayer in the 2020 financial year.
It should also be noted that the solution to the example does not take into account the car or the investment funds, since they continue to form part of the taxpayer's assets at the end of the tax period.