The housing situation in Spain has been a hot topic for years. With rental prices reaching record highs in many cities, both landlords and tenants are looking for ways to optimize their finances. For landlords, renting out a property not only generates income but also involves a series of expenses. The good news is that many of these expenses can be deducted on your income tax return, helping reduce your tax burden and improve rental profitability. Below, we outline the expenses you can deduct as the owner of a rental property located in Spain.

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1. Mortgage interest

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If the property you rent out is financed through a mortgage, you can deduct the interest and other financial expenses related to the loan. It’s important to note that this deduction does not include the repayment of principal, only the interest and bank fees. This deduction is particularly significant since mortgage interest often represents a substantial portion of property-related costs. Additionally, if you’ve taken out extra loans for property improvements, the interest on these loans is also deductible.

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2. Repair and maintenance costs

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Expenses related to maintaining the property are deductible. This includes:

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• Painting and minor repairs.
• Replacing deteriorated items such as doors, windows, or plumbing and electrical installations.
• Repairing appliances.

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These expenses should not be confused with improvements or expansions to the property, which are not deductible as regular expenses. Keeping the property in good condition is essential for attracting and retaining tenants, as well as ensuring its safety and habitability. To avoid future complications, it’s crucial to save all invoices and receipts for these expenses for accurate tax deductions.

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3. Municipal Taxes and Fees

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Taxes like the Property Tax (IBI) and related municipal fees, such as waste collection fees, are also deductible. Be sure to retain receipts and proof of payment. These taxes are obligations tied to property ownership and, being deductible, help reduce the tax burden associated with rental income. Other municipal fees, such as street lighting or cleaning, may also be considered, provided they are directly related to the rental property.

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4. Home Insurance

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Home insurance purchased to protect the property from damages or accidents is also a deductible expense. This includes both building and contents insurance, as long as it pertains to the rental property. Having adequate insurance is critical to safeguarding your investment and ensuring peace of mind for both the landlord and tenant. Additionally, premiums for supplemental insurance, such as liability insurance, can also be deducted.

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5. Utilities

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If, as the landlord, you cover utility costs like water, electricity, gas, or internet, these expenses are also deductible. However, it’s essential that these expenses are in your name and that you can provide proof of payment. In some rental agreements, landlords include utility costs in the rent for easier management. In such cases, maintaining a detailed record of payments is key for proper deductions.

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6. Professional Fees

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Expenses related to hiring professional services are also deductible. This includes:

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• Real estate agency fees for managing the rental.
• Lawyer or tax advisor fees related to the rental property.

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Hiring professionals can simplify rental management, ensure compliance with current regulations, and provide specialized advice that can help avoid potential legal or tax issues.

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7. Property and asset depreciation

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You can deduct an annual percentage of the property’s value as depreciation, as well as the value of the items included in the rental (e.g., furniture or appliances). This percentage is regulated by law and is typically 3% of the higher value between the purchase price and the cadastral value of the property, excluding the land value. Depreciation reflects the actual wear and tear of the property and its assets over time, acknowledging natural deterioration and obsolescence. Calculating it correctly is necessary to optimize tax deductions.

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8. Financing Costs

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If you’ve taken out additional loans or credit for renovations or improvements to the property, the interest and fees can also be deducted. This allows investments aimed at enhancing the quality and value of the property to receive tax relief, encouraging the maintenance and modernization of rental properties. These loans must be directly tied to the rental property, and their purpose must be documented.

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9. Community and Administration Fees

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Fees you pay to the homeowner’s association, as well as expenses related to property management, can also be included in your tax return as deductible. These costs are essential for maintaining common areas and ensuring the proper management of the building, which directly impacts the habitability and appeal of the rental property.

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10. Unexpected Costs and Rent Guarantee Insurance

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Expenses arising from unforeseen situations, such as urgent repairs for unexpected issues, are deductible in your tax return. Additionally, if you’ve purchased rent guarantee insurance to protect yourself against potential non-paying tenants, the premiums for this insurance are also deductible. This type of insurance is considered a necessary expense for generating rental income, as it ensures the collection of agreed-upon rent. Retain payment receipts and related documentation to claim these deductions accurately.

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Renting out a property in Spain involves fulfilling a series of tax obligations, but it also provides opportunities to optimize your income through deductions. Keep an organized record of all expenses related to the property and consult a tax advisor to ensure you maximize the deductions allowed by law. This will not only improve your profitability but also help you manage your property more efficiently. Alternatively, consider using tools like Arrento, Lodgerin’s property management platform, which simplifies managing your properties and optimizes your resources professionally and efficiently.

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