Rentals: life insurance is deductible

Deductible expenses

When a person owns a property that they have rented out, when calculating the net income from real estate capital to declare in their personal income tax (IRPF), they can deduct the depreciation of the property and the goods provided with it, as well as all necessary expenses for obtaining such income.

Thus, among other expenses, the law allows the deduction of the following:

• Non-state taxes and surcharges, as well as state fees and surcharges. However: as long as they are not penalties.
• Doubtful collection balances, in certain cases (for example, when more than six months have passed since the debt's due date without it being collected); also the amounts paid to third parties for services related to the rental (for example, home insurance or the service of an API that manages the lease).
• Loan interest, as well as repair and maintenance expenses of the property, with the joint limit of rental income.

Mortgage with life insurance

Although the law allows for the deduction of both home insurance and the interest on the mortgage loan taken out to acquire the property, until recently, the tax authority did not allow the deduction of life insurance that is often subscribed when formalizing such a loan . It is common for the conditions of these loans to establish a lower interest rate as long as life insurance premiums offered by the bank are paid (the existence of the insurance reduces the risk of default, which allows the entity to offer a lower interest rate).

Until recently, the tax authority considered that the premiums paid for these life insurance policies could not be included among the deductible expenses, as they were not a necessary expense to carry out the rental and obtain the corresponding income. According to this interpretation, only if not taking out the insurance prevented the establishment of the mortgage could it be considered a necessary expense. However, as in this case it only results in an increase in the interest rate, it is not.

Well, the tax authority has changed its position through the Central Economic-Administrative Court (TEAC). In a recent resolution, this court interprets that, given that taking out life insurance results in a discount on the interest rate of the mortgage loan, it should indeed be considered a deductible expense . According to the TEAC, it is not consistent to deny the deductibility of such an item to the extent that, if the landlord did not take out life insurance, they would be entitled to report a higher deductible expense for interest. Therefore, these premiums constitute a greater financial expense.

Rectification

If in recent years you have rented a property and have not deducted that expense, consider submitting rectifying tax returns for the non-prescribed years (2022,2023, 2024, and 2025). However, as a negative aspect, keep in mind that by doing so, you will restart the four-year period that the Tax Agency has to review your returns. Therefore, assess whether the amounts you can recover compensate for the risk of the Tax Agency having more time to verify your returns.

 

If you receive income from property rentals, we will verify that you do not pay more tax on them in your personal income tax than necessary and that you deduct all the expenses you are entitled to deduct.