Rental income should be declared just as any other income. In fact it comes under the heading of -‘rendimientos de capital inmobiliario’. There are important deductions that can be made that drastically reduce or eliminate any tax payable on income of this type.
Firstly you may deduce any bills such as the mortgage interest payments as well as amortisation costs (at 3% of the property) as well as any charges such as IBI and rubbish collection. Also deductible are insurance costs and the costs of professional services such as an accountant to calculate tax liability. Finally any expenses involved in the refurbishment or repair of the property may be deducted from the taxable income.
Once the yearly expenses have been calculated and deducted from the rental income, you have reached the net tax payable but this is not the final result.
Should the lodger be between the ages of 18 and 30 and earns over 7,455€ per year, then 100% of the net income may be deducted.
If the lease was signed before 01/01/2011, and the lodger is aged between 18 and 35 and earns over 7,455€ per year then 100% of the net tax may be deducted.
In all other cases, 60% of the net tax payable will be deductible or 50% if the lease began before 01/01/2011
Please note that if you benefit from mortgage interest relief, this will be affected by the above- mentioned deductions and should be reduced in proportion to the amount of the property leased to any lodger(s).