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Practical manual for Income Tax 2024. Part 1

Example: Deduction for energy rehabilitation works in buildings predominantly used for residential purposes

The community of owners of XXXX street number 23 has carried out a series of works to improve the energy efficiency of the building aimed at saving 50% of the energy consumed and achieving an improvement in the energy rating of the building to obtain an energy class "B". These works consist of improvements to the insulation of the façades, improvements to the thermal envelope, roofs and the breaking of thermal bridges, as well as the integration of renewable energy systems or installations into the building.

The works, which will be paid for by all owners (including commercial premises, residential properties, and garages) according to their participation quota, will begin in December 2024 and be completed in April 2025. A loan has been requested to carry out the indicated works, which will be paid by the owners through monthly receipts. Once this financing has been obtained, the community of owners will make three payments for the improvement works. The first payment will be made on December 1, 2024, by check payable to the contractor, and will be recorded on the invoice issued by the contractor as "Certification of Advance Payment for Energy Efficiency Improvement Works Contract," and two further payments will be made to the contractor on March 1 and May 1, 2025, respectively.

The couple formed by Mr. JG and Mrs. TK, married under the legal regime of community property, are owners of a home located in said community (their habitual residence) and by the coefficient of participation in said community they are entitled to, of the amounts paid (including the issuance of energy efficiency certificates), 8,000 euros of the first payment and 2,000 euros in the other two payments that will be paid by the Community of Owners to the contractor on March 1 and May 1, 2025.

The corresponding energy efficiency certificates were issued before and after the works. The latter will be issued on May 20, 2025, and will result in the home being classified as energy class "B."

Determine the amount of the deduction you can claim in 2024 and 2025, whether you file an individual or joint return, and the excess amounts you can deduct in subsequent years.

Solution:

Year 2024  

They will not be entitled to make the deduction.

The reason is that, despite having paid amounts in 2024 for the execution of the works, in this tax period the certificate has not been issued but it is issued in a later tax period (2025), therefore the deduction will be made in said later tax period (2025) taking into consideration in this case the amounts paid on December 1, 2024 (8,000 euros) and those paid on March 1 and May 1, 2025 (2,000 euros in each of them).

Year 2025

Mr. JG:

  • Deduction base: (8,000 euros + 4,000 euros) ÷ 2 = 6,000

  • Maximum base: 5,000

  • Deduction amount = 5,000 x 60% = 3,000

  • Remaining deduction base, deductible in the following four years: 6,000 – 5,000 = 1,000 euros

  • Accumulated base: 15,000 – 5,000 = 10,000

Mrs. TK

  • Deduction base: (8,000 euros + 4,000 euros) ÷ 2 = 6,000

  • Maximum base = 5,000 euros

  • Deduction amount = 5,000 x 60% = 3,000

  • Remaining deduction base, deductible in the following four years: 6,000 – 5,000 = 1,000 euros

  • Accumulated base: 15,000 – 5,000 = 10,000

Joint JG and TK

  • Deduction base: 12,000 euros

  • Maximum base = 5,000 euros

  • Deduction amount = 5,000 x 60% = 3,000

  • Remaining deduction base, deductible in the following four years: 12,000 – 5,000 = 7,000 euros

  • Accumulated base: 15,000 – 5,000 = 10,000

Year 2026

A. Yes Don JG and Mrs. TK file individual return in that fiscal year 2026

  1. When they filed an individual return in 2025

    • Outstanding amounts 2024: 1,000

    • Maximum deduction base (the smallest of):

      - Maximum annual base per declaration: 5,000

      - Accumulated base: 10,000

      - Amounts pending deduction: 1,000

    • Deduction amount = 1,000 x 60% = 600

    • Pending balance = 0

  2. When they filed a joint return in 2025

    • Outstanding amounts 2024: 7,000 euros ÷ 2 = 3,500

    • Maximum deduction base (the smallest of):

      - Maximum annual base per declaration: 5,000

      - Accumulated base: 10,000

      - Amounts pending deduction: 3.500

    • Deduction amount = 3,500 x 60% = 2,100

    • Pending balance = 0

B. Yes Don JG and Doña TK file joint declaration in 2026

  1. When they filed an individual return in 2025

    • Outstanding amounts 2024: 1,000 x 2 = 2,000

    • Maximum deduction base (the smallest of):

      - Maximum annual base per declaration: 5,000

      - Accumulated base [15,000 - 5,000 individual JG - 5,000 individual TK] = 5,000

      - Amounts pending deduction: 2,000

    • Deduction amount = 2,000 x 60% = 1,200

    • Pending balance = 0

  2. When in 2025 they filed a joint return

    • Outstanding amounts 2024: 7,000 euros

    • Maximum deduction base (the smallest of):

      - Maximum annual base per declaration: 5,000

      - Accumulated base: 10,000

      - Amounts pending deduction: 7.000

    • Deduction amount = 5,000 x 60% = 3,000

    • Pending balance = (7,000 - 5,000) = 2,000

    • Accumulated base: 10,000 – 5,000 = 5,000

    Note: Amounts paid but not deducted because they exceed the maximum annual deduction base (2,000 euros) may be deducted in the 2027 financial year.