failed habitual residence test

Surely more than once you have heard about the tax attributions that apply to the habitual residence. Although, if you don’t know the concept, you may be confused. It is important to know what is considered habitual residence since this concept has tax implications.

From Sky Marketing, we tell you in this article what is considered a habitual residence with regard to your tax obligations.

Before the Treasury, what is considered habitual residence?

To be considered the taxpayer’s habitual residence before the Treasury, it must be inhabited by it effectively and permanently. The home must meet a series of requirements:

The occupation times

The address that is considered habitual residence is the one in which you have lived for at least three years. This consideration admits the following exceptions:

  1. The attribute of habitual residence is not lost if you had to change your address and you have not completed three years in your new residence, due to circumstances such as illness or disability, marriage or marital breakdown, labor demand, change of employment, etc.
  2. That the home is new and you have occupied it for a period of 12 months, counted from the date of acquisition or completion of the works.
  3. That the taxpayer has resided for more than 183 days a yearin the case of owning more than one home.

The proximity to the building that constitutes the habitual residence

The consideration of habitual residence extends to the annexes, such as the parking spaces up to a maximum of two, the storage rooms, the swimming pools, etc. For this, the aforementioned annexes will have to be located in the same building as the house and their acquisition must be made in the same act together with the house.

What use is given to the figure of habitual residence?

Annually, thousands of people deduct an amount in their tax year from personal income tax for the purchase (mortgage payment), rent or rehabilitation of their habitual residence. It is often seen that, due to misinformation, taxpayers can fail in the correct application of tax credits, exposing themselves to the claims of the Treasury.

For tax purposes, it is considered the construction of a habitual residence, and therefore, the payments made to the promoter agency from which you buy off-plan are deductible. In this case, the term of execution of the work should not exceed four years.

The expenses of rehabilitation work of the habitual residence are also deductible, this work being declared of protected action in terms of rehabilitation. The protected action has to be determined by each City Council.

The deduction for home acquisition will be applied until such time as the circumstances that forcefully prevent the occupation of the home arise. With the exception of when the taxpayer does not live in his habitual residence due to position or employment, in which case he may continue to make deductions for this concept.

Can the Treasury deny the application of deductions for habitual residence?

Yes, it can. The General Tax Law refers to the general rule that each party must prove the facts that benefit them. Therefore, in tax matters, the taxpayer is required to prove the facts that justify the application of deductions, exemptions, bonuses and, in general, any tax benefit.

For its part, the Treasury may deny the deduction based on evidence such as:

  1. The registration of the taxpayer.
  2. The consumption of the main household supplies such as water, electricity, gas … etc.
  3. The distance between the habitual residence and the workplace. When the taxpayer has two dwellings, the Treasury takes as an indication of habitual, the proximity to the place of work.
  4. The distance from the health center. The Treasury records as an indication that the habitual residence is the closest to the health center that the taxpayer attends most frequently.

The Treasury can carry out a verification of habitual residence to the taxpayer, and deny him the right to apply the deduction. It must be taken into account that this verification can be extended to the last four non-prescribed fiscal years.

Is there a maximum amount for deductible investments?

In the case of investments in the acquisition, rehabilitation, construction or extension of the habitual residence, the maximum amount with the right to deduction is 9,040 euros per year . This amount includes all the established concepts. If this amount has been exceeded, the excess cannot be transferred to future years.

In the case of expenses destined to the adaptation of the habitual residence due to adapting it to a disability condition, the maximum amount entitled to deduction is established at 12,080 euros per year. If this amount has been exceeded, the excess cannot be transferred to future years.

What implications does the sale of the main residence have on the income tax return?

If you have sold your main home, the capital gains obtained in the transfer may be exempt. This exception applies if the total amount obtained by the transfer is reinvested in the purchase or rehabilitation of another habitual residence.

It’s called the homestead reinvestment exemption. There is a period to carry out the reinvestment of the amount obtained, which consists of a period not exceeding two years, after or before the sale.

To carry out your tax obligations it is necessary to bear in mind what is considered a habitual residence before the Treasury. At Sky Marketing we will be happy to answer this and other questions you may have in relation to the management of your real estate.


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