The depreciation of leased properties acquired by inheritance or donation is calculated on the value declared in the Inheritance Tax.

The Supreme Court contradicts the administrative criterion, by virtue of which the depreciation is calculated on the taxes paid on the inheritance or donation and the costs of subsequent works.

The Personal Income Tax Law establishes that the amounts destined to the amortization of leased properties are deductible, provided that they correspond to their effective depreciation. The depreciation meets this requirement of effectiveness if it does not exceed the result of applying 3% to the higher of the acquisition cost paid or the cadastral value, without including the value of the land. The Administration has been interpreting the concept of “acquisition cost paid” in a restrictive manner. Specifically, when a property is acquired by donation, inheritance or bequest, the administrative criterion is that the acquirer has not borne any cost in the acquisition, except for the expenses or taxes inherent to such acquisition. Therefore, according to the Administration, the 3% must be applied on a base consisting of those expenses or taxes plus the costs of subsequent works that increase the acquisition value, if any.
However, some courts have been interpreting that the value to be taken into account as “acquisition cost paid” is the real value of the property, i.e., the one considered for Inheritance and Gift Tax purposes, plus the expenses and taxes associated with the acquisition and those of the subsequent works. In spite of this, the income program of recent years has prevented the calculation of the depreciation of properties inherited or received as a donation on the value declared in the donation or inheritance for Inheritance and Gift Tax purposes, automatically applying 3% on the aforementioned cost paid, plus a reduction.
Now the Supreme Court, in a ruling dated September 15, 2021, has concluded that the thesis sustained by the Administration implies ignorance of the meaning of the term “amortization”, which is none other than the decrease in value suffered by the asset due to the passage of time and/or its use. That is to say, depreciation is a term with its own substantivity that does not require for its effectiveness that an investment has been previously made.
Furthermore, according to the court, the law does not distinguish between properties acquired for valuable consideration and properties acquired free of charge, so it does not make sense that when the property has been acquired by inheritance or donation to compare its cadastral value only with the costs and taxes paid in the acquisition, as this would distort the meaning of the precept by comparing magnitudes that have no relation between them.