With the sale of a property, comes the calculation of a capital gain and for this, it is vitally important to reflect the acquisition value of the property sold. As a reminder, the acquisition value of a property will be formed by the actual amount of the acquisition plus the cost of the investments and improvements made in the acquired goods and the expenses and taxes inherent to the acquisition.
It is here where doubt may arise as to what is considered by the Tax Agency as repair, conservation or improvement expenditure for the purposes of this declaration. In order to clarify this situation, the Directorate General of Taxes has issued numerous Binding Consultations from which we can extract the following information:
Repair expenses refer to those outlays that aim to restore an asset to its original state or to a functional state similar to the original. These expenditures do not significantly increase the value of the asset or substantially extend its useful life. Therefore, repair expenditures do not have a significant impact on the gain as they are considered necessary to maintain the asset in normal operating condition.
On the other hand, maintenance expenses refer to expenditures to prevent deterioration of the asset or to maintain the asset in a serviceable condition. Although conservation expenditure contributes to maintaining the value of the asset, its impact on the capital gain is usually limited, as it is considered necessary to preserve the condition of the asset and not to increase its value substantially.
In contrast, the concept of improvement is defined as the set of activities by which an alteration is made to a fixed asset, increasing its former productive efficiency. Such expenditure may include the extension of a property, the installation of structural improvements or the modernisation of its facilities. Improvements increase the value of the asset significantly and therefore have a direct impact on the capital gain, as they are considered to be investments that increase the value of the asset.
Based on the above information, repairs and maintenance are understood to be those aimed at maintaining the useful life of the property and its productive or usage capacity, while extensions or improvements are those that result either in an increase in the capacity or habitability of the property or in a lengthening of its useful life.
Consequently, if the taxpayer has carried out renovation work on his property, these may be classified as improvements or extensions, in which case they should be taken into account when calculating the acquisition value of the property transferred, or as conservation or repair costs, which should not be taken into account in this calculation.
In order to prove the above, the taxpayer must justify the various works by any accepted means of proof. In general, this proof must be provided by means of an invoice issued in compliance with the invoicing obligations.
Carmen Moya López
