Tax Deductions for Owners on Rent

Currently, renting a home can offer significant tax savings to owners on their income tax returns, provided certain requirements are met. Law 12/2023, the Housing Law, introduced a reform that allows for personal income tax deductions of up to 90% on rental income, making renting out a primary residence a fiscally attractive option.

☑️ 2025 Rental Income Tax Deductions for Owners

Owners who rent urban properties used as primary residences can benefit from reductions in their net income declared for personal income tax, in accordance with Article 23.2 of the Personal Income Tax Law, as amended by Law 12/2023. These are:

- 90%: If the property is in a stressed area and the new contract is at least 5% lower than the previous one.

- 70%: If the tenant is between 18 and 35 years old or in a vulnerable situation, with the property in a stressed area.

- 60%: If the landlord has completed an energy renovation or improvement in the two years prior to the contract.

- 50%: Standard discount for contracts outside the above categories.

☑️ Requirements for applying the Personal Income Tax discount for rentals

To calculate the net rental income, landlords can deduct several expenses related to obtaining rental income. These are some of the most common deductible expenses according to Article 23.1 of the Personal Income Tax Law:

- Mortgage loan interest: Interest paid on loans linked to the rented property can be deducted.

- Repair and maintenance expenses: The costs of repairs necessary for the maintenance of the property can be deducted, excluding expansion or improvement costs.

- Taxes and fees: Includes payments such as Property Tax (IBI) and garbage collection fees.

- Community fees and insurance: Building community fees and property insurance premiums are deductible.

- Utilities and services: If the owner pays for utilities such as water, gas, electricity, and other services, these expenses are deductible.

- Depreciation of property and personal property: Depreciation is allowed as a deduction, calculated as 3% per year of the higher of the acquisition cost or the cadastral value, excluding the land value.

- Professional fees: Expenses for services from real estate agencies, management companies, lawyers, and other professionals associated with the rental.

It is important to remember that all these expenses must be justified with appropriate documentation, such as invoices and payment vouchers. Furthermore, they must be directly related to the actual rental period.

⚠️ The discounts are applied to the net rental income, with percentages ranging from 50% to 90% depending on the type of contract, the tenant's profile, and the condition of the property.

To apply the Personal Income Tax discounts for renting a home, it is necessary to meet certain specific requirements; simply renting is not enough. Here we summarize the key conditions to qualify for these discounts:

1. Stressed area: The home must be located in an area recognized as stressed, according to a regional or municipal resolution.

2. Rent reduction: The new rental contract must entail at least a 5% reduction in rent compared to the previous contract, while maintaining the same conditions.

3. Young or vulnerable tenants: Tenants must be able to demonstrate that they are between 18 and 35 years of age or that they are in a vulnerable socioeconomic situation.

4. Recent renovation: Works must have been carried out in the two years prior to the rental agreement that improve the property's energy efficiency, accessibility, or sustainability.

It should be noted that these discounts do not apply if the tenant is a relative of the owner or if the lease is not for use as a primary residence, as would be the case with a tourist or short-term rental. To benefit from these reductions, it is essential to be able to demonstrate compliance with the conditions.

📝 How to calculate the net rental income and some frequently asked questions about deductions from income tax:

Calculating the net rental income:

1. Gross income: This is the total annual rent collected.

2. Deductible expenses: Subtract these expenses as permitted (such as maintenance, insurance, etc.).

3. Net income: Calculate the difference between the income and the deductible expenses.

4. Apply a tax credit: Depending on the conditions, you apply a tax credit of 90%, 70%, 60%, or 50% to the net income.

5. Taxable base: The result after the tax credit is the taxable base you pay.

Frequently asked questions :

- Multiple tax credits: You can apply different tax credits to different rental contracts, as the tax credit is per contract and not per taxpayer.

- Family tenants: Tax credits do not apply if the tenant is a family member, as the Treasury may consider there to be no market value.

- Seasonal rentals: Tax credits only apply to primary residences, excluding seasonal or tourist ss.

- Necessary documentation: You must keep all supporting documents, such as contracts, evidence of rent reductions, certifications of stressed areas, the tenant's ID (if applicable), and renovation invoices.

✍🏻 Tips for Owners :

Housing Law 12/2023 allows for a significant reduction in personal income tax for landlords, especially if the rent is lowered or if the property is located in a housing-stressed area. By meeting the conditions, you can reduce net income by up to 90%, achieving considerable savings. However, it is crucial to carefully review contracts and the tenant's profile and keep all necessary documentation to justify the discounts and deductions. Remember, plkan ahead, use the calculator, and if in doubt, CONSULT US!