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Practical manual for Income Tax 2020.

Amounts paid in the year with the right to deduction

a. General rule

Subject to the limit of 9,040 euros, established as a general rule, the basis for the deduction is constituted by the amount paid by the taxpayer in fiscal year for the acquisition or rehabilitation of the habitual residence, including the expenses and taxes arising from the acquisition that have been borne by the purchaser.

When the acquisition or rehabilitation is carried out with external financing , the amounts financed are understood to be invested as the loans obtained are repaid.

In these cases, include both the amortization of the capital and the interest and other expenses derived from said financing.  Among the latter, the following can be cited, among others:

  • The cost of the interest rate risk hedging instruments for mortgage loans regulated in article nineteen of Law 36/2003, of November 11, on economic reform measures ( BOE of the 12th). In the case of application of the aforementioned hedging instruments, the interest paid by the taxpayer will be reduced by the amounts obtained by the application of the aforementioned instrument.
  • Premiums for life and fire insurance contracts , provided they are included in the conditions of mortgage loans obtained for the acquisition or rehabilitation of the habitual residence.

Also part of the basis of the deduction , regardless of whether or not external financing is used, are the expenses and taxes arising from the acquisition that have been borne by the acquirer , such as Tax on Property Transfers and Documented Legal Acts, VAT , notary and registration expenses, agency expenses, etc.

Note: In accordance with the Additional Provision forty-fifth Law Personal Income Tax the following amounts will not be included in the base of the deduction for investment in habitual housing or of deductions established by the Autonomous Community:

  • The amounts that would have been paid by the taxpayer in 2020 due to the application of floor clauses, when before the end of the deadline for filing the self-assessment of IRPF for said year, an agreement is reached to return them with the financial institution, or such return proceeds as a consequence of the execution or compliance with court rulings or arbitration awards.

  • Those amounts paid in previous years by the taxpayer in application of the floor clauses subject to refund that are directly allocated by the financial institution in the year, following an agreement with the affected taxpayer, judgment or arbitration award, to reduce the principal of the loan.

b. Special rules

In addition to the general rule discussed above, the following special rules must be taken into account in order to determine the basis for the deduction, i.e. the amounts invested with the right to deduction:

  • When a primary residence is acquired after having enjoyed the deduction for the acquisition of other previous primary residences , deductions cannot be made for the acquisition or renovation of the new residence until the amount invested in it exceeds the amounts invested in the previous residences that have enjoyed the deduction.
  • When the transfer of the habitual residence has generated an exempt capital gain through reinvestment , the deduction base for the acquisition or rehabilitation of the new habitual residence will be reduced by the amount of the exempt capital gain, and deductions cannot be made until the amount invested exceeds the sum of the acquisition price of the previous residences, to the extent that it has benefited from a deduction, plus the exempt capital gain on the previous ones.

Likewise, when the transfer of the habitual residence had generated a partially non-taxable capital gain by application of the ninth transitional provision of the Personal Income Tax Law (because the date of acquisition was prior to December 31, 1994), the deduction for the acquisition of the new residence may not begin until the amount invested in it exceeds the amounts invested in the previous habitual residences, to the extent that they had enjoyed a deduction, plus the capital gain that is exempt from reinvestment.

The application of the reduction or abatement coefficients to determine the part of the capital gain obtained from the transfer of homes acquired before December 31, 1994 that is not subject to Personal Income Tax by application of the provisions of the ninth transitional provision of the Personal Income Tax Law is discussed in more detail in Chapter 11.