Taxpayers who purchased their home before 2013 and took the traditional principal residence investment deduction now have new scope to claim personal income tax reductions. The Central Economic-Administrative Court (TEAC), dependent on the Ministry of Finance, has corrected the criteria maintained for years by the Revenue Agency and established that even the cancellation of the mortgage loan with the money obtained from the sale of the property can be included in the deductible base of the income tax.
The resolution, published in October, unifies the doctrine and opens the door to claims from those who have sold their home in recent years and have not been able to deduct the final repayment of the mortgage. “The new TEAC criteria correct years of overly rigid interpretations and can mean a refund of more than 1,000 euros for many taxpayers,” explains Daniel Armendáriz, tax expert at TaxDown.
Changing the criteria has direct consequences for thousands of people. In 2023, the last year for which data is available in the Revenue Agency statistics, over 2.7 million taxpayers benefited from the transitional regime and applied the reduction in their return. That is, although more than 10 years have passed since the elimination of the deduction, the mortgages taken out usually last much longer, so there are still those who are entitled to the benefit. That year, in fact, the cost to the Treasury exceeded 2 billion euros.
The deduction for investments in the main residence has been, for decades, one of the most popular tax advantages in Spain. It allowed taxpayers to subtract 15% of the amounts paid each year for the purchase or financing of a main residence from the IRPEF rate, with a maximum base of 9,040 euros per year. Although the deduction was eliminated in 2013, the legislator maintained a transitional regime for those who had acquired habitual residence before that date. These taxpayers can currently continue to deduct the sums intended to pay their mortgage – both principal and interest – with a maximum limit of 1,356 euros per year.
Until now, the Revenue Agency’s interpretation had been particularly restrictive. He believed that the right to the deduction expired at the time of the sale of the home and that, if the taxpayer had used part of the price obtained to pay off the outstanding mortgage, this payment would no longer be eligible for the deduction. According to previous Treasury criteria, the cancellation was part of the transfer process and did not constitute an investment intended for the acquisition of habitual residence. In practice, withholdings were allowed only for installments paid up to the day before the sale, leaving out the final amortization of the loan.
TEAC has now disavowed this interpretation. In his resolution he argues that even the mortgage payment made with the money from the sale should be considered a deductible investment, provided that the requirements of the transitional regime are respected. The court, explains Armendáriz, maintains that the origin of the funds is irrelevant, since the destination of the money is the same: paying the mortgage on the first home. In this way the tax treatment must be identical whether the loan is paid with your savings the day before or on the same day of the sale with the amount obtained.
From now on, anyone who sells their first home purchased before 2013 and pays off the mortgage with the money from the transaction will be able to include this amount in the deduction base for the corresponding year. In turn, TaxDown insists, the new criterion allows you to review the years from 2021 to 2024, not yet prescribed, by submitting corrective declarations accompanied by supporting documentation. Previous years can no longer be changed because the legal four-year deadline has passed.
In practice, the new scheme opens the door to potential savings of up to 1,356 euros per year, depending on the amounts paid and the applicable limits. A taxpayer who in the year of the sale had paid 3,000 euros in installments and had paid off 6,040 euros of loans with the price received would have been able to deduct only the 3,000 euros. Now the base amounts to 9,040, which increases the deduction from 450 to 1,356 euros.
