What are the deductible expenses when letting property in Spain?

If you rent out a property in Spain, it is important to know what expenses you can deduct when calculating your taxes. This can make a significant difference in your final tax burden and your net income. Below is an overview of the main deductible expenses you can claim for the period the property is rented out in Spain.

Please note that deductible expenses are assessed per investor and property and may vary depending on your specific situation.

What expenses are deductible?

1. Management costs
   These are costs you incur to manage your rental property. This could include the salary of a property manager who manages the rental for you, or costs for a rental platform that advertises your property for you.

2. Interest on loans
   If you took out a loan to purchase or renovate your Spanish property, you can deduct the interest paid on this loan from your rental income.

3. Utilities (water, electricity, gas)
   The costs for water, electricity and gas are also deductible, as long as you as the owner bear these costs. This also applies if you pass these costs on to your tenants. Make sure these services are clearly stated in the lease agreement.

4. Maintenance Costs
   Maintenance costs are costs for repairs and general maintenance of the home. This can range from minor repairs to larger maintenance projects, such as painting or replacing a water heater.

5. Property Tax (IBI)
   A property tax is levied annually by the local municipality. This tax is deductible from your rental income.

6. Garbage Levy
   The cost of disposing of garbage, called, is also deductible. This levy is imposed by the municipality and is one of the standard costs for homeowners in Spain.

7. Community costs
   If your property is part of a communal complex, such as an apartment complex, you probably pay “community costs. These costs are similar to VVE costs in the Netherlands and are used, for example, to maintain common areas such as swimming pools, gardens and elevators, are also deductible.

8. Depreciation of the building
   The depreciation of the value of the building (excluding the land, but including costs such as the ITP at purchase) can be deducted annually. This applies as a fixed deduction for property that is leased out, provided it is properly calculated and documented.

9. Insurance
   The cost of insurance related to the rental property, such as buildings insurance or landlord liability insurance, is deductible. Make sure the bills are in the owner’s name and relate to the leased property.

10. Commissions for rental and management companies
    When you use a rental or management company to manage or rent out your property, the commissions you pay for this are deductible. This could include a rental platform that advertises the property or a management company that handles rental administration.

11. Conservation, Repair and Renovation Costs
    In addition to maintenance costs, you can also deduct conservation, repair and renovation costs. Consider repairing damage to the property or larger renovation projects that help preserve the property.

12. Invoicing Requirements
    For all deductible expenses, it is important that the invoices be in the name of the owner as stated in the purchase contract. In addition, the address of the rental property must be clearly stated on the invoice. If this is not the case, these expenses may be disallowed upon inspection by the Spanish Tax Office.

Proportional deduction based on rental period
Expenses can only be deducted for the period in which the property was actually rented out. If the property was only partially leased during the year, the deductible expenses should be adjusted in proportion to the occupancy rate.

How does the tax calculation work?

After deducting all of these expenses from your rental income, you pay 19% tax on the amount remaining. Here is an example to clarify this:

Suppose you have €25,000 in rental income per year and your deductible expenses are €10,000. This means that your taxable profit is €15,000. On this €15,000, you pay 19% tax, which amounts to €2,850. You will then be left with a net profit of €12,150.

Specific situations and deductible expenses

When renting out property in Spain, it is important to know that not all expenses are deductible. Only expenses directly related to the rental of the property are eligible. This means that some expenses, even if they seem logical, will not be accepted by the Spanish Tax Office.

An example is transportation costs for furniture. For example, if you transport furniture from the Netherlands to Spain to furnish your rental property, these costs are not deductible. Even if you divide the transport invoice among several properties, include the address of the rental properties and your NIE number, and make the payment through a Spanish bank account, these costs are not recognized as inherent to the rental. This was confirmed in a recent case where furniture storage costs were also deemed not deductible because they were not directly linked to the rental activity.

Another common situation involves interest on loans. For example, if you took out a loan by withdrawing excess value on your property in the Netherlands to buy an apartment in Spain, the interest paid may be deductible. For this, however, it is essential to prove that the borrowed money was actually used for the purchase or renovation of the rental property. This proof may be required of you during a tax audit, so be sure to keep all documentation, such as payment receipts and loan agreements.

This is how you optimize profits!
So it is essential to properly identify your expenses and understand what deductions you can take. This can help you significantly reduce your tax burden and retain more of your income. We always recommend seeking professional advice in this regard.