Owning property in Spain offers a wealth of opportunities, especially for those choosing to rent out their homes. However, it also comes with a responsibility: filing and paying Personal Income Tax (IRPF). Fortunately, Spanish tax laws provide a range of deductible expenses that can significantly reduce your taxable rental income. In this detailed guide, we break down what you can and cannot deduct, and how these deductions can work in your favor.

What Is IRPF?

IRPF (Impuesto sobre la Renta de las Personas Físicas) is Spain's personal income tax. If you earn rental income from a property in Spain, you are required to declare this income and pay taxes on it, whether you are a resident or non-resident (though the rules differ slightly between the two).

Who Needs to File?

• Residents: Taxed on worldwide income.

• Non-residents: Taxed only on income earned in Spain (such as rent from Spanish property).

Deductible Expenses for Rental Properties

If your property is rented out (whether long-term or for tourist use), the following expenses can typically be deducted from your gross rental income:

1. Mortgage Interest

You can deduct the interest portion of your mortgage repayments. The principal (capital repayment) is not deductible.

2. Property Taxes and Fees

• IBI (Impuesto sobre Bienes Inmuebles): Annual local property tax.

• Garbage collection and local municipal charges.

3. Community Fees

If your property is part of a complex or shared community, these costs (including pool maintenance, elevators, etc.) are deductible.

4. Insurance Premiums

Home insurance covering fire, damages, or third-party liability can be claimed.

5. Repairs and Maintenance

Expenses incurred to maintain the property’s condition, including:

• Plumbing, electrical repairs.

• Painting.

• Replacing broken appliances. Note: Upgrades that increase the property's value (like a new kitchen or pool) are considered capital improvements and are not deductible.

6. Utility Bills

Water, electricity, gas, and internet expenses are deductible only if the landlord pays them and they are not reimbursed by the tenant.

7. Depreciation

You can deduct 3% annually of the construction value (not the land) of the property, based on the cadastral value.

8. Professional and Management Fees

Fees for property managers, real estate agents, accountants, or legal services related to the rental are deductible.

9. Advertising Costs

Any costs related to advertising the property for rent (e.g., online platforms, flyers, photography) can be deducted.

Non-Deductible Costs

• Expenses related to personal use of the property.

• Capital improvements (e.g., major renovations that add value).

• Acquisition costs (e.g., notary, registration, and purchase taxes are considered part of the capital gains base).

Special Considerations for Non-Residents

• EU/EEA Residents: Eligible to deduct expenses proportionate to their rental income.

• Non-EU Residents: Typically taxed on gross income without any deductions unless a tax treaty exists.

Final Thoughts

Understanding and applying deductions properly can greatly impact your annual tax bill. Whether resident or foreign investor, keeping thorough records and consulting with a local tax advisor is key to maximizing your benefits while staying compliant.

Owning rental property in Spain can be incredibly rewarding—and even more so when you make the tax system work for you. At Green Villas Estate, we’re here to guide our clients through every step of this process.