IRPF for rental and efficiency works: how to optimise your taxation

The profitability of a property is not only measured by the rent you collect or the price you pay upon signing the deed, but by the tax impact you bear afterwards. If you own a rental property or are planning renovations on your property, IRPF regulations and Cadastre rules determine whether your tax bill is halved or unnecessarily multiplied.

Below, we break down the current IRPF deductions for primary home rentals, the tax benefits for improving energy efficiency, and the correct way to manage the tax base against the Cadastre's reference value.

New Reduction Brackets for Residential Rental IRPF

The net yield from real estate capital —that is, gross income minus deductible expenses such as IBI (the local property tax), rubbish collection fees, 3% depreciation of construction, insurance, and utilities— is taxed under the general tax base. For new primary home rental contracts formalised under the current Tax Agency regime, the general state reduction is 50% (unlike contracts prior to the Housing Law's entry into force, which maintain 60% as a transitional regime).

However, the legislator provides specific incentives that reward particular behaviours in the residential market:

• 90% Bonus: applied when you sign a new tenancy agreement in a designated 'stressed' residential market area and agree an initial rent that is more than 5% lower than the price of the previous contract for the same property (after applying the annual update clause).
• 70% Bonus: reserved for properties entering the rental market for young people aged between 18 and 35 in designated 'stressed' areas, or when allocated to social housing programmes with public administrations or non-profit organisations.
• 60% Bonus: applicable if the property has undergone energy or structural rehabilitation works completed in the two years prior to the rental contract's signing.
• 50% General Reduction: applies to all other new primary home contracts that do not fit into the aforementioned bonus categories.

Illustrative Numerical Example: The Real Impact on the Taxable Base

To understand the difference in taxation, let's assume you obtain a positive net yield of 6.000 € per year after deducting all computable expenses for your rented property:

In the most favourable scenario, of the 6.000 € net received, you only add 600 € to your general taxable base, which significantly minimises the effective marginal rate you pay in your annual income tax return.

IRPF Deductions for Energy Improvement Works

If you undertake works on your primary home or a property intended for rent, the Tax Agency maintains active state IRPF deductions for works and accredited payments in fiscal years 2024, 2025, and extended until 31 December 2026 (with energy performance certificates valid until before 1 January 2028). These deductions do not reduce real estate capital yields, but directly reduce the final tax payable:

1. 20% Deduction: for interventions that reduce the combined heating and cooling demand of the property by at least 7%. It has an annual maximum base of 5.000 € (maximum deduction of 1.000 €).
2. 40% Deduction: for works that achieve at least a 30% reduction in non-renewable primary energy consumption, or raise the property's energy rating to class «A» or «B». The annual maximum base is 7.500 € (deduction of up to 3.000 €).
3. 60% Deduction: applicable to energy rehabilitation works in complete residential buildings. It has a cumulative maximum base of 15.000 €, distributed with an annual limit of 5.000 € (any excess not deducted due to insufficient quota can be carried over to the following four fiscal years).

The Cadastre's Reference Value and Buyer Taxation

When you buy a second-hand property, the taxable base for Property Transfer Tax (ITP) is not automatically calculated on the price you pay before a notary. The General Directorate of the Cadastre annually updates the reference value, which legally acts as the presumed minimum taxable base for both ITP and Inheritance and Gift Tax (ISD).

If the price stated in the sale and purchase contract is lower than the reference value set by the Cadastre, the law obliges you to pay ITP on the latter. If you pay tax on the lower agreed actual price, the autonomous administration will almost automatically issue a supplementary assessment claiming the difference plus late payment interest.

Autonomous Disparity in ITP and Price Pressure

The total tax cost varies significantly depending on the autonomous community where the property is located. While in the País Vasco the general transfer rate is 4%, in communities such as Baleares or Cataluña, a progressive scale applies, starting at 10% (up to 600.000 €) and rising to 11% (up to 900.000 €), 12% (up to 1,5 million euros), and 13% for higher brackets, reaching an aggravated rate of 20% when the buyer holds the legal status of a 'large holder' (gran tenedor).

This tax pressure coexists with a continuous escalation of transfer values in actual closing operations. According to the National Institute of Statistics (INE), through its House Price Index (IPV), in the second quarter of 2026, closing prices ended with a year-on-year rebound of 12.2% (with a rise of 7.4% in new builds and 12.9% in second-hand properties).

This constant revaluation in deeded prices directly impacts the average valuations of the Cadastre and the autonomous tax brackets. Therefore, planning for eligible reforms, appropriately selecting tenant profiles, and auditing the reference value before signing any binding commitment is crucial for optimising the overall profitability of your residential assets. For complex operations, it is advisable to cross-reference your specific case with a specialised tax advisor.