Resuming the Main Home Deduction after a Period of Ineligibility

It may be possible to resume claiming the deduction for a main residence after being unable to claim it for several tax years.

In this regard, reference should be made to Central Economic-Administrative Tribunal (TEAC) Resolution RG 765/2023 of 22 April 2024, issued to unify criteria. It addresses whether taxpayers may claim the deduction for investment in a main residence in tax years after 2012 if they acquired their main home before 1 January 2013 but did not claim or report the deduction in any pre-2013 tax year since acquiring it. The criterion established is as follows:

First: Taxpayers may claim the deduction if they did not claim or report it before 2013 because they did not file a return, as their income did not require them to do so.

Second: Taxpayers may claim the deduction if they did not claim or report it before 2013 even though they were required to file a return based on their income and did so, where they had no gross tax liability in any of those years against which to apply the deduction.

Third: Taxpayers may not claim the deduction if they were required to file a return based on their income and did so, but failed to claim the deduction before 2013 despite having gross tax liability in at least one of those years against which they could have applied it.

Fourth: If the absence of tax liability that prevented the deduction from being claimed before 2013 was due to an error, the circumstances of the case must be considered on the terms set out above.

If this transitional regime applies, the deduction is calculated under Articles 67(1), 68(1), 70(1), 77(1) and 78 of the Personal Income Tax Law, as in force on 31 December 2012, without prejudice to deduction rates approved by the relevant Autonomous Community under Law 22/2009. Articles 54 to 56 and transitional provisions 9 and 10 of the Personal Income Tax Regulations, approved by Royal Decree 439/2007 of 30 March (Official State Gazette of 31 March), also apply.

Article 68(1) of the Personal Income Tax Law, in the version in force on 31 December 2012, sets out the general structure of the deduction. Subject to certain requirements and circumstances, taxpayers may deduct a specified percentage “of the amounts paid during the relevant tax period to acquire or renovate a home that constitutes or will constitute the taxpayer’s main residence.”

It follows from this provision that, except in cases involving disability, claiming the deduction for investment in a main residence requires two conditions to be met: the taxpayer must own the home, even jointly, and it must constitute or be intended to constitute their main residence. This applies regardless of how the purchase is financed, the taxpayer’s marital status or, where applicable, the matrimonial property regime.

For the purposes of claiming and retaining deductions for the purchase or renovation of a home, the definition of a main residence is set out in Article 68(1)(3) of the Personal Income Tax Law and, in further detail, in Article 54 of the Regulations, which provides, among other things:

“As a general rule, a taxpayer’s main residence is the building in which they live continuously for at least three years.”

For a home to qualify as the taxpayer’s main residence from the date of acquisition, “it must be effectively and permanently occupied by the taxpayer within twelve months of the date of acquisition or completion of the works” (Article 54(2) of the Regulations).

The definition of a main residence therefore includes a time requirement: the taxpayer must live there continuously for at least three years. Continuous residence entails actual, permanent use by the taxpayer; temporary absences do not affect this requirement.

If the home becomes the taxpayer’s main residence more than twelve months after its legal acquisition, the taxpayer may claim the deduction for the amounts paid to acquire it from the date they begin living there as their permanent main residence. The deductions are confirmed once the taxpayer has lived there continuously for three years from that date.

Conclusion

Assuming the transitional regime applies—which, as noted, requires that the home was acquired before 2013, that the taxpayer claimed the deduction for amounts paid to acquire it in a tax year before 1 January 2013 (subject to the exceptions described above), and that the home qualified as their main residence after the three-year period—the taxpayer may be entitled to resume claiming the deduction for amounts paid from the date they again begin living in the home as their permanent main residence.

However, the renewed deduction is conditional on the home once again qualifying as the taxpayer’s main residence. As noted above, this requires continuous residence there for at least three years from the date the taxpayer moved back in.