The purpose of this blog is to provide you, our clients, with detailed information regarding the Luxury Home Tax, formally identified as the "Solidarity Tax to Strengthen Housing Programs". It was first established in 2009 to fund social housing programs throughout the country. The tax targets properties with a registered value that exceeds a predetermined threshold. For 2023 that threshold is US$276,000.
What is the Luxury Home Tax?
The luxury home tax is levied on residential properties with a construction value exceeding the threshold (fixed or permanent installations), regardless of its regular, occasional, or recreational use. There is no distinction within the law regarding primary or vacation homes (please see Section 6 for further reference). The value of the main construction and any additional structures (such as a gazebo, pool, walls, internal roads, etc.) must be known in order to complete the form.
The proceeds are collected by the General Tax Department (known in Spanish as the "Dirección General de Tributación") and are used to finance public programs to provide housing for families under the poverty line.
Tax Base
The threshold value is based on elements such as the materials, system, and age of the construction (it does not consider the value of the land). However, if the construction value exceeds said threshold, the total value of the property (including the value of the land) will be subject to taxation based on the rates. The tax rates range from 0.25% to 0.55%, depending on the property’s valuation threshold.
To determine the construction value of your Property, and the obligation to declare and pay the tax, you must hire a licensed appraiser. Please keep in mind that the appraisal is done pursuant to the technical criteria established by the General Tax Department, and not the standard market practices. Upon request, your lawyer may outsource an appraisal on your behalf and at your behest. The value is afterward declared to the General Tax Department through a sworn statement.
Payment
The Client must normally declare the value of the property before the General Tax Department prior to January 15th every three years, and pay the tax on or before January 15th. Your lawyer may record the Client as an active taxpayer and assess the corresponding tax.
Penalties for Non-Compliance
The Luxury Home Tax carries financial implications for property owners. The obligation to report is every three years. Failure to comply may result in penalties and interest charges. Property owners should ensure they understand their obligations and meet the tax deadlines to avoid any legal issues. The following penalties will be applied to owners that fail to comply with the Luxury Home Tax:
-If there is a difference exceeding 10% between the amount declared by the Client and what the General Tax Department considers applicable, the Client will be sanctioned with a penalty equal to 5 times the tax amount that was not declared and paid.
-If the Client does not submit the declaration, it will be sanctioned with a penalty of up to 10 times the tax that had to be paid.
Certain properties may be exempt from the Luxury Home Tax. For instance, primary residences, properties used for agricultural purposes, and properties owned by the government or diplomatic missions are typically exempt. However, these exemptions can vary, so it’s essential to consult with a tax professional to determine your property’s eligibility.
It is recommended to conduct an appraisal and determine the value of your construction, even though you are not using your property as a residential home, to determine if you are subject to the Luxury Home Tax. You are welcome to reach out to us for an opinion and/or referral for an appraiser. This is a general summary of the Luxury Home Tax, therefore, there are specific cases where other aspects may apply, that need to be addressed on a case-by-case basis.