Comprehensive renovations that increase value in income tax on the sale of your home
When selling a home, comprehensive renovations can be a smart strategy to optimize capital gains and reduce income tax payments. However, not all renovation works are viewed the same by the tax authorities, and it is essential to understand which improvements are recognized for tax benefits.
The General Directorate of Taxes establishes that improvements that can be accounted for in the purchase value of the property, and thus reduce taxes, are those that enhance the quality of the house, such as a comprehensive renovation. However, recently, the tax authorities have adjusted their criteria, making it more challenging to achieve tax savings in income tax through renovations.
The Central Economic-Administrative Court (TEAC) has reiterated the distinction between repairs and maintenance and improvement works. Only the latter will increase the acquisition value of the property, according to a recent resolution.
Repairs and maintenance vs. Investments and improvements
The tax authorities rely on Article 13 of the Income Tax Regulations to define conservation and repair expenses as those that are regularly made to maintain the normal use of material goods, such as painting, plastering, or fixing installations. This includes the replacement of elements such as heating, elevators, and security doors.
On the other hand, investments and improvements, recognized by the Institute of Accounting and Audit of Accounts (ICAC), are considered genuine investments that increase the useful life or habitability of the property. The TEAC allows the inclusion of rehabilitation works that meet certain criteria, such as the consolidation of structural elements or structural adaptation to guarantee the stability of the property.
Reducing the tax bill with home renovations
Merely stating that a comprehensive renovation has been carried out is not sufficient to consider the works an improvement. Evidence is crucial, and it is recommended to provide building permits, projects endorsed by the College of Architects, and detailed budgets with descriptions of the interventions.
We recommend documenting the works with itemized budgets and projects, emphasizing their innovative nature compared to the original state of the property. Avoiding generic terms on invoices and providing visual evidence, such as photographs, support the classification of expenses as investments and improvements.
In summary, proper planning and documentation of comprehensive renovations can make a difference in capital gains and income tax savings when selling a home. Dust and Sand Luxury Homes in Sitges guide you through this process to maximize the value of your property.
Article by Dust and Sand Luxury Homes.
