How rental properties are taxed: key points that every company and owner should know

 

1) What expenses can be deducted in IRPF?

In rentals, all necessary expenses to obtain income are deductible. These include:

• Property tax (IBI) and associated property taxes (if not fines or surcharges)

• Community expenses, security, concierge, or administration

• Legal advice related to the rental

• Home or premises insurance

• Interest expenses on loans for the property

• Repairs and maintenance (note: improvements are not expenses, they are amortized)

In addition, unpaid rents are deductible if more than six months have passed since the due date or the tenant is in bankruptcy, provided that they have previously been declared as income.

2) Coexistence between rentals subject to VAT and exempt rentals

It is common for a company to rent properties for different uses. Let's remember:

• Rental properties for habitual residence are exempt from VAT

• Rentals for economic activities are subject to VAT (generally at 21%)

This difference determines whether the VAT incurred on expenses can be deducted or not.

3) Withholding taxes

When the tenant is a company or professional, a 19% withholding tax must be applied on the rental income (including expenses passed on to the tenant).

4) Seasonal and tourist rentals

They do not benefit from the 50% to 90% reduction in IRPF, as the Administration does not consider them rentals intended for permanent residence.

• If hotel-type services are provided → they are subject to VAT

• If no hotel services are provided → they are exempt from VAT, but subject to Property Transfer Tax (ITP)

5) Subletting: tax impact for the owner

If the property is sublet (even partially), the owner:

• loses the right to apply the housing rental reduction in IRPF

• must charge 21% VAT (because it is no longer exclusively for residential use)

Therefore, it is critical to regulate subletting contractually and require communication.

Rental taxation is not uniform. It depends on the use, who leases, who occupies, and whether additional services are provided.