Which costs can you deduct from the profit?

Reclaim 3% profit tax after sale

20 / Oct

When a non-resident seller sells a property in Spain, 3% of the purchase price is withheld by the buyer as a down payment for profit tax. This amount must be deposited in a tax office account. That way, the Spanish Tax Administration does not fall by the wayside if the seller goes back to his country and does not declare the profit made. We have discussed this extensively in previous articles (see e.g. Article “Selling property in Spain”), and will therefore not get into further explanation of this in this article.

Once the 3% has been paid, this amount can be reclaimed from the Spanish tax authorities if a loss was made on the sale.

This loss can be proved in two ways. The first case is the simplest, namely where a property is sold for less money than it was originally purchased for; an actual loss is then made.

The second case is a bit more complicated. This is where a profit is made on the sale, but it can be shown that this profit was used for costs and improvements to the property. This requires invoices to be submitted, but not all invoices are approved by the Spanish tax authorities. This is because a distinction is made between invoices for repairs and maintenance and invoices for investment and improvements to the property.

Repair and maintenance

The Spanish tax authorities have determined that certain costs must be regarded as costs for repair and maintenance, which cannot be used to prove loss on sale. This concerns the following costs:

  • Regular costs for maintaining the use of the material goods, such as painting walls, doors and windows and repairing installations;
  • Replacing existing installations, such as a kitchen and a bathroom;
  • Maintenance work and purchasing equipment for maintenance.

Please note, this concerns costs incurred for repair or maintenance of all goods belonging to the property. Some examples are: painting doors, replacing a window, repairing the gutter, replacing a sink, replacing the floor, etc.

Investment and improvements

The invoices for investments and improvements made to the property are the invoices that can be used to recover the 3% that the buyers paid. These are costs that can therefore be deducted from the profit.

It concerns costs with which new elements are added to the house. This would mean, for example, the installation of security doors where normal doors used to be, the installation of a swimming pool, the installation of an extension of the building, etc.

Other deductible expenses

In addition to the mentioned invoices, other invoices can also be submitted to demonstrate loss. In this case, these costs would include the notary’s fees for purchase and sale and the taxes paid for purchase and sale, such as transfer tax and the plusvalía. It is therefore important that you keep these invoices well if you plan to sell the house in the future.

Selena Escandell Beutick