Amortisation of leased properties acquired by inheritance or donation

What is amortization?

Amortization is the systematic loss of value suffered by all assets due to use, the passage of time or obsolescence. Over time and use, everything depreciates and loses value, and this depreciation is reflected with amortization.

The owners of leased properties can deduct as an expense the amounts destined to the amortization of the property to determine the net return on real estate capital to declare in their Personal Income Tax Return.

How is it calculated?

Article 23 of the Personal Income Tax Law determines that the calculation basis for the depreciation of the leased properties is the higher of the following values: the acquisition cost satisfied or the cadastral value, excluding from the computation the price or the cadastral value of the land.

Calculation of inherited or donated property amortization

For years it has been discussed whether, in the case of a leased property acquired by inheritance or donation, the acquisition cost paid for the purposes of calculating the amortization of this is the declared value for which the inheritance and gift tax was paid, plus taxes and expenses inherent to its acquisition or, on the contrary, the acquisition cost paid is only the amount of the aforementioned expenses and taxes paid for the acquisition.

The Administration has been interpreting that, if the property has been acquired free of charge (inheritance or donation), the acquisition cost to be taken into account to calculate the amortization thereof is made up exclusively of the expenses and taxes paid for its acquisition by which should not include the declared value for which the property was acquired. In addition, it has adapted the personal income tax return models, forcing the taxpayer to report whether the acquisition of the leased property has been by inheritance or donation, to verify how the property was acquired and how the taxpayer calculates its amortization.

This interpretation of the Administration is only understood with the purpose of favouring its collection interests since the deductible amortization thus calculated may be notoriously lower and, therefore, detrimental to the interests of taxpayers since it forces them to deduct a much lower amortization amount.

The issue has already reached several Provincial Superior Courts of Justice, and they have resolved against the criteria of the Administration.

Finally, the Supreme Court, in a Judgment dated September 15, 2021, has settled the controversy and has established as a doctrine that, in the case of properties acquired free of charge and for the calculation of their amortization, in the acquisition cost satisfied is included the value of the asset acquired in application of the rules of the Inheritance or Gift Tax or its proven value in these levies.

Conclusion

Therefore, if you have inherited or have been donated property and you rent it, remember that, when calculating the amortization, you must consider the declared value of the property as acquisition cost, together with the expenses and taxes inherent to its acquisition.

Finally, remember that, if you have calculated and declared the amortizations of the leased properties received by inheritance or donation following the criteria of the Administration set out above, you can request the rectification of the declaration, since it harms your economic interests and request the return of undue income Yes, provided that the right to rectify your Personal Income Tax Return has not expired (the Personal Income Tax Return prescribes after 4 years, counted from the day following the day on which the filing period ends).