Tax Returns 2017: when a landlord is able to benefit from and not lose tax on rentals

In a market where more and more owners rent their property, it is important to know in which cases the landlord can benefit from the 60% reduction. However, the right to this reduction can also be lost.

The rent tax reduction, as specified in the Personal Income Tax Law, is 60 per cent and is computed on the positive net income derived from the rental of a property. José María Salcedo, Ático Jurídico's partner, ensures that the definition of the net income is necessary first. "To that end, the expenses provided for in Article 23(1) of the Personal Income Tax Act shall be deducted from our income provided they relate to the property which is obviously leased, or which was necessary to earn income from rental," he added.  properties for sale

Which property owners can benefit from this reduction?

This reduction is not permitted by all landlords. The property rented must be used as the residence of the tenant and not for any other purpose. The right to the reduction is not applicable in cases where the property is rented as a professional office or a headquarters of a company.

In addition, the income collected must be taxed not as an economic activity, but as a return on immovable capital.

Salcedo reminds us that, pursuant to Article 27.2 of the Personal Income Tax Act, property rental shall be considered as economic activity, provided the administration is carried out by at least one full-time employee.

"In this case, the income obtained is taxed as an economic activity and the 60 percent reduction is not applicable. This occurs only if the taxpayer receives returns from immovable capital, "Salcedo points. Salcedo points.

What if the property is rented to an employee company?

The tenant can sometimes be an enterprise, but the use of this property is no longer an office or a company headquarters, but rather the home of one of its employees. In such cases, could the landlord apply the tax reduction?

The reply is yes. The Central Economic-Administrative Court (Tribunal Económico-Administrativo central, or TEAC) stated that, if the purpose of the property is precisely this, it is possible for the property owner to apply the discount, even if the tenant is an undertaking.

However, the rental contract must state that the property is only used for housing and that the individual occupant must mention the property.

What about renting for housing to a charity?

A similar occurs if the property is rented out to an NGO or a charitable organization, as long as the property is not used as the entity's office or head office. Some NGOs often rent property and transfer it to people in need or in special protection groups.

In this case, José María Salcedo also considers that it is important to take into account the intended use of the property. "It is true that identifying the people who will actually occupy the property is much more complex in this type of lease, but we believe that the end goal should dominate, as property will be used as housing and reduction should be acceptable," he concludes.

When can the right to a reduction in taxes be lost?

The right to apply the reduction may be lost if the taxpayer does not include in their revenue tax returns income and expenses derived from the rent of the property.

"Whether the received income is declared on time or not does not matter, as long as a tax audit has not commenced. In other words, if a taxpayer forgets to declare the income and thus applies the reduction, "The lawyer says.

However, if a tax audit was initiated and this revenue was not declared, the Hacienda tax office's approach is that the taxpayer cannot claim the discount anymore as part of the audit.

"In any event, we face an administrative judgment which must not be shared by taxpayers. Indeed, in a recent ruling, the Supreme Court of Justice of Madrid has held that TEAC involves imposing double punishment on the taxpayer: on the one hand, the application of the discount is refused. On the other hand, you are usually penalized because this reduction was incorrectly included in your income tax return. In short, the Court of Justice in Madrid considers that the reduction could be requested, even if a tax audit had been initiated, "Salcedo points. He points out.

The lawyer therefore advises to appeal the case in the event that, for the above-mentioned reasons, the tax office refuses to apply the reduction.