Apartment owners who have ever rented out their property often encounter unexpected nuances when selling real estate. The Spanish tax agency (Agencia Tributaria) traditionally required applying a maximum depreciation of 3% when calculating capital gains tax. However, a recent Supreme Court (Tribunal Supremo) ruling has changed the established rules, allowing a more flexible approach to depreciation.
Many property owners are unaware that the amount by which they can reduce their property’s acquisition cost depends on the depreciation claimed during the rental period. This directly affects the final tax bill they will face upon selling. The new judicial practice opens ways to optimize tax liabilities, but calls for close attention to details.
What is depreciation
Depreciation is not just an accounting term—it is a practical tool for reducing the taxable base on rental income. The law allows writing off up to 3% of the building’s value (excluding land) each year, which lowers taxable income. However, when selling an apartment, the tax authorities require reducing the acquisition value by the full amount of claimed depreciation, even if the owner has not actually used this deduction.
As a result, if the owner did not account for depreciation in their tax returns, the tax authorities would still reduce the acquisition cost by the maximum allowable amount, thereby increasing the capital gains tax. This rule had long been a source of disputes and led to numerous legal battles between citizens and tax authorities.
Tax authority’s position
Until recently, Hacienda (the Spanish tax authority) took a strict position: regardless of the actual depreciation claimed by the owner, the maximum percentage was automatically applied when selling a property. As a result, even those who used a lower rate or did not claim depreciation at all faced additional charges and penalties.
This problem was especially acute for those who rented out their property short-term or were unaware of the option to claim depreciation. In these cases, the tax office still required a 3% reduction in the acquisition cost for each year the property was rented out, significantly increasing the tax burden upon sale.
Supreme Court ruling
In 2024, the Supreme Court of Spain resolved this dispute. The judges ruled that taxpayers have the right to use not only the maximum, but also a lower depreciation rate, provided it is justified and supported by documentation. Specifically, if the owner referred to official tables or regulations different from the standard 3%, they could use those rates when calculating capital gains tax.
This decision has set a real precedent for anyone who has rented out property and now plans to sell it. Taxpayers now have the opportunity to defend their interests and contest the automatic application of maximum depreciation if they previously used lower rates.
Practical issues
Apartment owners often wonder: which depreciation rate is most beneficial to apply during rental? The answer depends on long-term plans. If you intend to sell, it is wiser to use the lowest possible depreciation to avoid raising the taxable base in the future. However, this will mean a smaller deduction from current rental income.
If the owner has already applied 3% annually, it won’t be possible to change this figure at the time of sale—the tax office will rely on the data previously reported. But those who didn’t use depreciation or applied a lower rate should now prepare documents confirming their chosen rate to avoid disputes with the tax authorities.
Errors and risks
The situation becomes more complicated for those who did not account for depreciation in their tax returns at all. In this case, the tax office will still reduce the acquisition cost by the minimum allowable amount, even if you didn’t use this deduction. However, now, given the Supreme Court’s position, it is possible to try to prove that the applicable rate should be below 3% if there are valid grounds.
If the property has already been sold and depreciation was not taken into account, the tax authorities may initiate an audit and charge additional tax. In this case, it is advisable to prepare a justification for the chosen depreciation rate in advance and be ready for a possible dispute with the fiscal authorities.
