How to declare rental income from your property

Real estate capital income is income arising from:

• The rental of rural or urban immovable property
• The creation or assignment of rights of use or enjoyment over properties (usufruct, surface rights, easements, ground rents…)

For income to be classified in this way, the property must not be used in an economic activity carried on by you as the taxpayer.

Arts. 21, 22 and 23 Personal Income Tax Law

What if the property is not rented?

If the property is at your disposal (not rented, not used in an economic activity), it does not generate real estate capital income — but rather an imputed real estate income (with the exception of the main home, undeveloped land and rural properties).

The rental is treated as an economic activity — not real estate capital — if any of the following circumstances applies:

• You use at least one full-time employee under an employment contract to manage the activity.
• The rental includes services characteristic of the hotel industry (restaurant, cleaning, laundry and similar).

If you merely let the property for periods of time without hotel-type services, it is real estate capital.

Sub-letting:

• What the sub-lessor (tenant who sub-lets) receives: investment income.
• What the owner receives from their share of the sub-letting price: real estate capital income (not entitled to the residential rental reduction).

Rental of a business or mine:

• If the subject of the contract is only commercial premises: real estate capital income.
• If the subject includes an exploitable economic unit (business): investment income.

Property with mixed use in the same year:

If the property was partly rented and partly at your disposal during the year, the income is allocated proportionally by days:

• Days rented → real estate capital income
• Days at your disposal → imputed real estate income

Early termination of the contract:

If the landlord pays the tenant to terminate early:

• Landlord → property improvement (not a deductible expense)
• Tenant → capital gain

If the tenant pays the landlord to terminate early:

• Landlord → real estate capital income
• Tenant → capital loss

You must declare all amounts you are entitled to receive from the tenant or licensee, including:

• The agreed rent
• Amounts corresponding to goods let with the property (furniture, appliances…)
• Amounts for sub-letting or assignment of lease (those corresponding to the owner)

Not included is VAT or IGIC if the rental is subject to these taxes.

Unpaid rent: If the tenant does not pay and you have not agreed a reduction or deferral, you must still recognise the amount as gross income. You may only deduct the balance as a "doubtful debt" if the requirements are met (see deductible expenses).

You may deduct all expenses necessary to generate the income. The most common are:

1. Interest and financing costs:

Interest on third-party capital invested in the acquisition or improvement of the property, including life insurance premiums linked to the loan if their arrangement was a condition imposed by the lender.

Only deductible from when the property is rented, not for the prior period.

Floor clauses: If in 2025 you refund interest collected under floor clauses, do not include it as income. If you already deducted it in prior years, you will need to regularise.

2. Maintenance and repair costs:

• Painting, plastering, repair of installations
• Replacement of elements (heating, lift, security doors…)

Not deductible are amounts used for extensions or improvements (recoverable through depreciation).

Combined limit on interest + maintenance/repair: May not exceed, for each property, the amount of gross income obtained. The excess is deductible in the 4 following years with the same limit.

3. Taxes and charges:

IBI (property tax), refuse collection charges, lighting charges… provided they are not state-imposed penalties and are paid by you (not the tenant).

4. Personal services:

Administration, security, caretaking, garden maintenance, owners' community fees.

5. Contract formalisation and legal defence:

Costs of the lease, sub-lease, assignment or creation of rights, and legal defence costs relating to the property.

6. Doubtful debts:

Deductible if the debt has been unpaid for more than 6 months at the end of the year, or if the debtor is in insolvency proceedings. If you subsequently collect the balance, you must recognise it as income in that year.

7. Insurance:

Premiums for third-party liability, fire, theft, glass breakage and similar insurance on the property.

8. Utilities:

Water, electricity, gas, internet… only if paid and borne by the landlord. If the tenant pays them, they are not deductible for you. If you pass them on to the tenant, they count as income.

9. Depreciation of the property:

Overall limit: Cumulative depreciation may not exceed the acquisition value of the property.

If the property was not rented for the whole year, expenses (depreciation, interest, insurance, IBI…) are only deductible in proportion to the days actually rented.

• Payments for claims that reduce the value of the property
• Cost of improvements (recoverable via depreciation instead)
• Interest and financing costs incurred before the property was rented

(+) Gross income
(-) Interest and financing costs      ┐ Combined limit:
(-) Maintenance and repair            ┘ not > gross income
(-) IBI and charges
(-) Personal services (community, caretaker…)
(-) Contract formalisation and legal defence
(-) Doubtful debts
(-) Insurance
(-) Utilities
(-) Depreciation
─────────────────────────────────────────
(=) Net real estate capital income

Reduction for residential rental:

Only applies when the property is used as the tenant's main home. Does not apply to tourist rentals, commercial premises or properties with hotel-type services.

The reduction only applies to positive net income declared in the self-assessment before the AEAT initiates an audit.

Contracts prior to 26 May 2023: 60% reduction on positive net income.

Contracts from 26 May 2023:

Stressed residential market areas are published by the Ministry of Housing (mivau.gob.es).

Reduction for irregular income (30%):

A 30% reduction is applied when:

• The generation period is more than 2 years and is attributed in a single year
• The income is obtained in a notably irregular manner

Limit: The maximum base to which the 30% applies is €300,000 per year.

If the tenant is the spouse or a relative up to the third degree (including in-laws), the net income may not be less than:

• 2% of the cadastral value of the property
• 1.1% if the cadastral value was revised in the previous 10 years

If the rental is between related parties (shareholders, directors, relatives up to the third degree with a shareholding ≥ 25%), the valuation must be at market value and documented in accordance with Corporation Tax regulations.