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Namely, article 14 of the Personal Income Tax Regulations (Royal Decree 439/2007, of March 30, 2007) states that these amounts are deductible if they relate to depreciation that has actually occurred to the real estate asset. And for these purposes it is considered that depreciation satisfies this actual occurrence requirement where it does not exceed, on an annual basis, 3% of the higher of the paid acquisition cost or the cadastral value, excluding the amount relating to the cost or cadastral value of the land.

The term “paid acquisition cost” has not been specifically defined for these purposes, although the Personal Income Tax Law itself provides keys to the meaning of this term. Namely, in the regime on capital gains or losses, when determining the calculation mechanism for the amount of a capital gain or loss, it expressly specifies that in cases of transfers with or without consideration, capital gains or losses must be calculated by reference to the difference between their “acquisition costs and transfer values” (article 34):

1. In transfers for consideration (article 35), acquisition cost consists of the actual amount for which it was acquired plus the costs of expenditure and improvements made on the acquired assets and the expenses and taxes inherent to the acquisition (without interest) paid by the acquirer; and transfer value is the actual amount at which disposal took place less the same types of expenses and taxes paid by the transferor.
2. In acquisitions or transfers for no consideration (article 36) the same rules apply, and the value for inheritance and gift tax purposes is taken as the actual value (up to the limit of its market value).

From these rules it may be concluded that, where a property has been acquired for no consideration (in an inheritance or as a result of an inter vivos transfer –a gift, for example-), the cost or acquisition value (for the purposes of future transfers and for depreciation purposes) may be taken to be the value given to the real estate asset in the inheritance or gift, plus any expenses and taxes arising on the inheritance or gift.

This, however, does not tally with the interpretation that the DGT appears to have adopted when, for example, in resolution V0112-18, of January 19, 2018, it concluded that, in cases of inherited real estate assets, the “paid” acquisition cost is the “amount of the expenses and taxes paid in respect of the acquisition” (in other words, only items that have caused an “actual cost” to the acquirer, which according to the DGT are only the expenses and taxes arising from the inheritance itself). In other resolutions, such as resolution V1917-19, of July 22, 2019, it went as far as clarifying that those taxes do not include the tax on increase in urban land value, in that, even though it will have been paid by the heir, it is charged on the value of the land, which cannot be depreciated.

The idea underlying this interpretation (accepted by some economic-administrative tribunals –see the decision by the Valencia Regional Economic-Administrative Tribunal, of September 20, 2016-) is that, for properties acquired for no consideration, nothing has been paid for them, beyond any expenses and taxes generated by the inheritance itself, and therefore these expenses and taxes are the only components of the “paid” acquisition cost.

This administrative interpretation, however, is a long way from attaining a consensus, since various judgments have already appeared from the high courts finding that the paid acquisition cost in relation to real estate assets received for no consideration is the reported value for inheritance and gift tax purposes.

This issue, in actual fact, is about to be decided by the Supreme Tribunal, as may be inferred from the Decision of February 21, 2020 (appeal 5664/2019), in which the government lawyer appeals against Valencia high court judgment of May 30, 2019 (appeal 1065/2016); and its subject matter is determining the basis for calculating the amounts to be deducted in respect of depreciation to determine net income from real estate capital subject to personal income tax where the acquisition took place by inheritance or for no consideration.

Be that as it may, the 2019 Renta Web program now requires specification whether the rented properties were acquired with or without consideration, as announced in Order HAC/253/2020, of March 3, 2020, approving the 2019 return forms; because this information is needed for the program to calculate the applicable depreciation. Therefore, the advice is to watch out for the future decision by the Supreme Court and think about whether it is recommendable to challenge self-assessments.