Can I deduct my mortgage in my 2020 tax return?

The start of the 2020 tax return campaign has begun, and as is usually the case at this time of year, many Spanish taxpayers who own a home are wondering whether it is possible to deduct some of the amount paid for the mortgage.

In these cases, the so-called “deduction for the acquisition of the principal residence” can be applied. However, in order to do so, it is essential to meet a series of requirements:

It’s only applicable on mortgages granted before 2013

To begin with, this deduction can only be applied to a mortgage contracted for the purchase of your main residence. Moreover, given that the Spanish Treasury abolished it on the 1st of January 2013, it can only be applied by those who bought the property (and took out the loan) before 31 December 2012. And who, in addition, applied this tax relief in the 2012 tax return or in previous tax returns.

Those who meet all these requirements can deduct up to 15% of what they have paid for their mortgage during 2020. A 7.5% in the state portion and a further 7.5% in the regional portion . This percentage may be different in each community. The deduction can be applied to a maximum base of 9,040 euros per year. In this way, the taxpayer can deduct up to a maximum of 1,356 euros. 

However, if the mortgage is for a property shared by two people, when they file their tax return jointly, they will be able to deduct a maximum of 9,040 euros per year. 

If they do it separately, each of the taxpayers will be able to apply the deduction on what they have paid individually for the mortgage.

Tax relief is also available for a modified mortgage

This criteria is valid for any existing mortgage that meets the above-mentioned requirements. Even if it has been subsequently modified. According to the Tax Agency, changing the conditions of a loan does not change its purpose (buying the property), so those who have done so do not lose their right to take the deduction for the purchase of a primary residence.

Consequently, if the mortgage has been modified in any way in 2020, the deduction can still be applied to the amount paid. If you have advanced capital (early repayment), if you have carried out a novation (agreement with the entity to change the conditions) or a subrogation of creditor (transfer of the loan to another bank), if you have taken out a new mortgage to refinance the original credit…

However, the Treasury introduces an important nuance. If that mortgage was modified to increase its capital, the deduction cannot be applied to the amount paid to repay the money from that increase. For example, if the loan was for 100,000 euros and was increased by a further 50,000 euros, the deduction could be applied to the amount paid to repay the initial 100,000 euros. Two thirds of the capital amortised during the year.

The deduction is applicable on everything paid during the year

So much for the theory, but what expenses associated with the mortgage loan can be deducted in practice? 

The maximum base of 9,040 euros per year can include all the costs related to the mortgage: what has been paid in instalments, early repayments, the costs of setting up, modifying or cancelling the loan and what has been paid during the year in commissions and associated products (life and home insurance, for example). Let’s say, for example, that during 2020, 7,200 euros have been paid in monthly instalments, 200 euros for home insurance and 500 euros of commission for subrogating the loan to another bank. In this case, the 15% deduction could be applied on an annual total of 7,900 euros, so this taxpayer could deduct up to 1,185 euros for their mortgage. 

If you require any assistance or legal counsel concerning properties, purchases and sales on the islands of MallorcaMenorca and Ibiza, please contact us at your convenience at info@mallorcasolicitors.co.uk or by phone on the numbers listed on our contact page.

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