Nearly a million landlords under scrutiny by the Tax Office for the upcoming tax declaration

The Tax Agency has its eye on nearly a million homeowners who rent out their properties. Specifically, in this Tax Campaign, it has sent notices to 866,000 taxpayers to warn them that its tax data includes information about their rentals, and they must include this income in their declaration. According to the Union of Tax Technicians (Gestha), around 40% of rentals go undeclared, meaning there are around a million properties being rented out off the books.

Failure to declare rental income can lead to fines of up to 150% of the amount defrauded, plus any late payment interest based on the time elapsed.

How can the Tax Office discover that a property is being rented out?

There are clues such as analysing consumption data like electricity, gas, or water corresponding to that property, and certainties such as information provided by the tenants themselves to obtain tax benefits or subsidies.

If rental income exceeds €1,600 annually, must be included in the declaration (tax return) as real estate capital gains. If it's a long-term rental (not seasonal, vacation, or tourist rentals, which are taxed more by the Tax Office), the landlord can deduct up to 60% of the net profit, a measure aimed at encouraging long-term renting.

Expenses such as the mortgage, community fees - including assessments - or those associated with the maintenance and repair of the property can also be deducted. Even agency fees paid by the landlord are deductible, according to the housing law passed in 2023. In addition to these expenses, property taxes (IBI), municipal fees associated with basic services like basura (rubbish collection) can also be deducted.

Once all these expenses are added up, they are subtracted from the actual rental income obtained, and 60% of that taxable base is deducted. In other words, tax is only paid on 40% of the net profit.

Imputed real estate income

Any homeowner with a property other than the main residence will have to declare imputed income for that property. This is the case with second homes.

It should be noted that real estate income will not be imputed when it comes to the main residence (and up to two parking spaces acquired together with that property) or if it is a rented property. The granting of the right to use parking spaces for residents does not generate the imputation of real estate income, as such concession does not constitute a real right.

The imputation will be calculated by the Tax Agency in the tax data and the draft return. Generally, the imputation is calculated by applying 2% to the cadastral value of the property listed on the IBI receipt. If the cadastral value has been revised, the applicable percentage is 1.1%.