The Supreme Court’s blow to owners of empty homes. It has decided that taxpayers with real estate that has remained without rent because they have not found a tenant cannot deduct the expenses they generate in the declaration of Renta 2020. This question is gaining strength in the midst of a pandemic, at a time when the supply of rental properties and the number of empty tourist apartments have increased.
We recall that the IRPF law allows in its article 23 the deduction of certain expenses related to the rental of real estate, whether housing, premises or offices, when they are taxed as income from real estate capital in the declaration of Renta 2020. But what happens with properties that are rented out and cannot find a tenant? This is the question that has just been resolved by the Supreme Court.
The High Court aligns itself this time with the Public Treasury by considering that they must impute the income, that is to say that they must be taxed with 1.1 or 2% of their cadastral value in the IRPF declaration (based on art. 85 of the IRPF law). “The legislator understands that any property, other than the habitual residence, is likely to generate income or income, so taxed in the IRPF, with a minimum equivalent to 2% or 1.1% of the cadastral value according to the case, the mere possibility of obtaining such income,” said the Supreme Court. It therefore considers that “income from immovable property, which is not let or sublet, but which is intended to be, is taxed as imputed income”.
“We are facing a judgment that is very detrimental to real estate lessors, since it prevents them from deducting the expenses they must bear to have the property ready to be rented,” explains José María Salcedo, partner at Ático Jurídico. And not only that, it also forces them to impute real estate income for these empty properties, when, precisely because they are rented, they are not available for the private use of their owners, adds the expert.
The tourist rental apartment will be imputed income in the IRPF, even if it has been empty.
This decision of the Supreme Court particularly affects the owners of tourist apartments who, on the occasion of covid-19, saw their properties empty. Thus, it is put on the side of the balance of the Treasury which stipulates that, although the house has been unoccupied, the owner must impute the real estate income which corresponds proportionally to the days in which the property has not been rented in relation to the total number of days of the year.
In addition, these landlords will not be able to deduct expenses incurred by the properties while they are untenanted but ready to let.
In summary, the Supreme Court holds that homeowners cannot deduct expenses incurred, such as electricity, water, gas, property tax, insurance, or community fees, while they are empty and without tenants. For the High Court, this deduction of costs is intended to reduce the tax burden of the lessor who receives rental income. Therefore, “if there is no rent during the year or part of it, it is not possible to deduct the expenses attributable to this period”.
The lessor will also not be able to deduct the interest expense on external capital provided for in Article 23.1.a) of the law on personal income tax. In the judgment appealed from and delivered by the Superior Court of Justice of the Community of Valencia, the taxpayer requested to deduct the cost of interest from external capital for the restoration of premises that were not were not leased during the financial year controlled by the administration. However, we remind you that this expense is deductible if the property is rented.
Expenses for the repair and maintenance of the property are deductible.
Although the Supreme Court does not deal with this question, José María Salcedo recalls that the General Directorate of Taxes, in consultation V3146-18, had admitted the deduction of these repair and conservation expenses incurred in the property before its rental, provided that they have as their exclusive purpose, and thus demonstrated, the future obtaining of income from real estate capital, and not the enjoyment, even temporary, of the property by its owner.
If you also wish to entrust the rental of your property in Estepona, Manilva, Casares or Benhavis, I invite you to contact me on 0034 676 86 22 50.