Updates on Real Estate Net Income Reductions

New developments in the reductions applicable to determining net income from real estate

With the implementation of Law 12/2023, of May 24, concerning the right to housing, the reduction for determining net income from real estate has been revised. However, as outlined below, it solely impacts those rental agreements for housing executed from May 26, 2023, onwards.

Firstly, it’s crucial to note that the new reductions won’t affect the 2024 income tax return, applicable to the 2023 fiscal year. Therefore, the reduction for this year’s tax return remains at 60% for all cases.

Hence, these new developments will be effective for the 2024 tax year, occurring in 2025. To determine the applicable reduction in each case, a distinction must be made between two contract groups: those signed before May 26, 2023, and those signed after this date.

In conclusion, we’ll encounter the following scenarios based on the timing of the tax return:

• 2024, corresponding to the 2023 tax year. The reduction will remain 60% for all cases.

• 2025, corresponding to the 2024 tax year. The applicable reduction could be:
  • Contracts signed before May 26, 2023. 60%, following pre-Law 12/2023 regulations.
  • Contracts signed after May 26, 2023. 90%, 70%, 60%, or 50%, depending on the contractual circumstances.

Now that we’ve established the contract date, we can ascertain the conditions necessary to apply each of the various reduction percentages for contracts signed after May 26, 2023:

90% reduction if:

• A new lease agreement is formalized.
• The property is located in a tense market area.
• The initial rent is decreased by 5% compared to the last rent of the previous lease agreement for the same property, once the annual update clause of the previous contract, if applicable, has been applied.

70% reduction if:

• The taxpayer has rented the property for the first time.
• The property is in a tense residential market area.
• The tenant is aged between 18 and 35 years old (when multiple tenants occupy the same property, the reduction applies to the portion of net income proportionally corresponding to tenants meeting the criteria).

70% reduction when:

• The tenant is a Public Administration or non-profit entity using the property for social rent with a monthly rent lower than that set in the Rental Assistance Program of the state housing plan, or for accommodating individuals in economic vulnerability, or when the property is part of a public housing program or qualification where the competent authority imposes a rental income limitation.

60% reduction if:

• The property has undergone a rehabilitation action (as outlined in section 1 of Article 41 of the Tax Regulations) within two years before the lease agreement’s formalization date.

50% reduction in other cases.

The mentioned requirements must be met at the time of lease agreement signing, with the reduction remaining applicable as long as the requirements are fulfilled.

In summary:

Finally, it’s important to note that the application of the 90% and 70% reductions, as mentioned earlier, requires the property to be located in an area designated as a tense residential market area, which will become effective on March 16, 2024.

Furthermore, the aforementioned reductions will not apply to lease agreements that violate section 6 of Article 17 of the LAU.

For any questions or information, feel free to contact us at info@amatimmo.cat or call us at (+34) 934 803 400.

Discover more about tax-related topics on our blog

Liked the article? Share it!