IRPF: Reparation in later exercise to which compensation for construction defects is collected

The DGT considers that since the legislation does not establish a deadline to make reparation of the damage suffered, if such reparation materializes in a subsequent tax period, it can request the rectification of the self-assessment in which the profit corresponding to the compensation received.

A Community of Owners received compensation for construction defects in a certain period, after the filing of a lawsuit and subsequent negotiation. The community carried out the rehabilitation works, financing them with the amount of the compensation obtained, and since there is a remnant not invested in said works, the community plans to distribute said excess among its members.

The General Directorate indicates that it will not proceed to compute any gain or loss to the community members to the extent that the compensation received by the Community of Owners coincides with the cost of repair. Yes, there will be an equity variation when there is no equivalence between the compensation received and the cost of repair.

Therefore, to the extent that the cost of the repairs that are made corresponds to the amount of compensation received, there will be no capital gain or loss, a circumstance that can not be affirmed with respect to the part of the compensation received that is not intended to make repairs that are compensated.

The effective application of the compensation received to the performance of the repair works -for the existence of the equivalence between compensation and repair costs- absorbs both the cost of the repairs carried out and those that will be made, delimiting exclusively the scope of repair expenses.

Regarding the term of completion of the repair works, the regulation does not establish the existence of a temporary space for its execution (applying the compensation amount to the repair). However, the nature of the personal tax on the income obtained in the tax period (calendar year) that the IRPF has in the line of applying effectively the compensation in the same tax period of its temporary imputation, thus avoiding that produce in that period the lack of equivalence mentioned above that could determine a capital gain.

The materialization of compensation in subsequent tax periods would allow taxpayers to request the rectification of the self-liquidation in which the compensation has been incorporated (for the part not invested) as a capital gain, in the terms of art. 120.3 LGT.