B Law & Tax
28 April 2023

Tax advisor: The family loan used to pay off the mortgage of the principal residence is deductible

According to a recent consultation of the General Tax Directorate (DGT), those taxpayers who are still entitled to deduct in the Personal Income Tax the amounts invested in their principal residence can continue to deduct these amounts, even if they cancel the mortgage with which they acquired the property and replace it with a family loan.

The answer provided by the DGT indicates that the law does not establish limitations as to the origin of the financing (own or third party) or its structure. In particular, the agency points out that it does not matter if the loan comes from a family member. Therefore, as long as the connection between the two means of financing is demonstrated and that both are destined to the payment of the housing, the taxpayer will be able to continue deducting the amounts invested in the habitual residence.

The deduction for investment in the principal residence can only be applied if certain conditions are met. For example, if a debt is totally or partially cancelled and at a later time a new loan is obtained with no direct relation to the previous cancellation, it will be considered a different operation and the deduction for investment in primary residence cannot be applied to the new financing.

B Law & Tax International Tax & Legal Advisors.


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