Mortgage Interest Deductibility in Spain in 2026: Can Non-Resident Landlords Deduct Financing Costs Against Rental Income?

Non-resident landlords who let Spanish property can deduct mortgage interest against rental income, but only if they live in the EU, Iceland or Norway. Article 24.6 of the LIRNR opens the deduction regime of the Spanish personal income tax law to EU and EEA residents, while Article 24.1 taxes everyone else on gross rent. A 2025 Audiencia Nacional ruling has challenged that split, holding that denying deductions to non-EU landlords violates the free movement of capital under Article 63 of the TFEU. The ruling is not settled law, but it opens a potential appeal route for UK, US and other third-country owners.

What does Spanish law say about mortgage interest deductions for non-residents?

Article 24.1 of the LIRNR (Real Decreto Legislativo 5/2004) sets the general rule: non-residents without a permanent establishment in Spain are taxed on the full amount of their rental income, with no expense deductions. Article 24.6, added by Ley 2/2010 and broadened by Ley 26/2014, creates an exception for EU and EEA residents. They may deduct the expenses listed in Article 23.1 of the IRPF law (Ley 35/2006), provided the expenses are directly related to the Spanish rental income and have a direct, inseparable economic link to the activity in Spain. The tax rate under Article 25.1.a is 19 per cent for EU and EEA residents, and 24 per cent for everyone else.

Which financing costs can you deduct under Article 23 of the IRPF law?

Article 23.1.a.1 of the IRPF law allows deduction of interest on borrowed capital invested in the acquisition or improvement of the property, plus other financing costs. The AEAT’s practical manual for IRPF 2025 confirms that this covers the interest portion of mortgage payments, loan arrangement fees, and life insurance premiums where the policy was a lender requirement for granting the mortgage. Capital repayments are never deductible: only the interest component. The deduction applies solely to the period the property is actually let, calculated proportionally to the number of days the tenancy is active. Interest accruing before the tenancy began is not deductible, because the expense must correlate with the income it generates.

Is there a cap on how much mortgage interest you can deduct?

Yes. The AEAT manual confirms that mortgage interest and repair costs combined are capped at the rental income received in that tax year. If your annual interest bill exceeds your rental income, the unused portion carries forward for up to four years and can be set against future rental income from the same property. Amortization, calculated at 3 per cent of the higher of acquisition cost or valor catastral (excluding land value), is deducted separately and is not subject to this cap. A highly leveraged landlord whose interest absorbs the entire rental income in year one can still deduct amortization, but cannot create a rental loss to offset against other income.

How is the interest deduction calculated for partial-year lets?

The AEAT manual is explicit: financing costs are deductible only for the period the property is actually let. If a property is rented for 200 days out of 365, only 200/365 of the annual mortgage interest is deductible. Interest accruing before the tenancy began is not deductible, because the AEAT requires a correlation between the expense and the income it produces. This proportional rule applies to all financing costs, not just interest. A landlord who buys a property in March, starts letting it in June, and pays a full year of mortgage interest must apportion the interest to the letting period only. The same proportional principle applies to insurance and community fees: only the portion attributable to the let period is deductible.

How does the EU versus non-EU split work in practice?

	EU/EEA resident	Non-EU resident
Taxable base	Net income (gross rent minus deductible expenses)	Gross income (no deductions)
Tax rate (Art 25.1.a LIRNR)	19%	24%
Mortgage interest deductible	Yes, under Art 24.6 + Art 23.1.a IRPF	No, under Art 24.1 (statute as written)
Amortization deductible	Yes, 3% of acquisition cost	No
IBI, community fees, insurance	Yes	No
Carry-forward of excess interest	Yes, 4 years	No (no deduction to carry)

The rate differential compounds the base differential. A non-EU landlord pays 24 per cent on every euro of rent, while an EU landlord pays 19 per cent on a sharply reduced base. For a leveraged property, the combined effect can eliminate the tax bill entirely for the EU landlord while leaving the non-EU landlord with a substantial bill on gross income.

What did the Audiencia Nacional rule in July 2025?

The Audiencia Nacional, in its ruling of 28 July 2025 (recurso 636/2021, ECLI:ES:AN:2025:3630), held that Spanish domestic legislation denying expense deductions to non-EU and non-EEA residents infringes Article 63 of the Treaty on the Functioning of the European Union, which guarantees the free movement of capital. The court concluded that all non-resident taxpayers have the right to deduct expenses when determining the yield of their rented Spanish properties, not only those resident in the EU or EEA. The case involved a US resident whose deduction claim had been rejected by the TEAC, the central economic-administrative tribunal. The court accepted the rectification of her self-assessments and the deduction of expenses, provided the taxpayer could demonstrate a direct economic link to the Spanish activity. The court also cited Article 25 of the Spain-US double taxation convention, which prohibits tax discrimination between residents of the two states.

Is the ruling settled law?

No, and this is the critical caveat. The Spanish tax administration and the State Attorney opposed the taxpayer’s position during the proceedings. There is a significant unresolved argument around the standstill clause in Article 64.1 of the TFEU, which permits member states to maintain restrictions on capital movements with third countries that existed before 31 December 1993. The restriction on deductions for non-residents already existed in Article 18 of Ley 18/1991, the predecessor to the current IRPF law, before the TFEU standstill date. Legal analysis of the ruling notes that this clause was apparently not addressed in the proceedings, and that the question of whether a residential property investment qualifies as a direct investment under the standstill exception remains unresolved. The case may be appealed to the Tribunal Supremo, which could refer the question to the Court of Justice of the European Union. Until then, the tax treatment of non-EU rental income in the IRNR should not be considered a settled question.

How much difference does the mortgage interest deduction make?

Consider a EUR 500,000 apartment in Marbella let for EUR 24,000 per year, with a 40 per cent loan-to-value mortgage at 3.5 per cent interest. The annual interest is approximately EUR 7,000. For an EU landlord, this interest is deductible under Article 23.1.a of the IRPF law, reducing the taxable base alongside IBI, community fees, insurance and amortization at 3 per cent of acquisition cost. After all deductions, the net yield might be around EUR 1,900, taxed at 19 per cent, producing a bill of roughly EUR 361. For a non-EU landlord under the current statute, the full EUR 24,000 is taxed at 24 per cent, producing a bill of EUR 5,760. The mortgage interest deduction alone accounts for most of this EUR 5,400 gap, and the 5 percentage point rate differential accounts for the rest.

How should a non-EU landlord act on the ruling?

A non-EU landlord who wishes to claim mortgage interest deductions can file Modelo 210 on that basis, citing the Audiencia Nacional ruling. If the Agencia Tributaria challenges the return, the landlord can point to the court’s reasoning on Article 63 TFEU. Refund claims for non-prescribed years, generally the four years preceding the filing, may also be available where tax was previously paid on gross income. From 2026 accruals, Order HAC/623/2026 requires an itemised expense breakdown per property on Modelo 210, so any landlord claiming mortgage interest must list each expense category separately on the form itself. This should be done with a Spanish tax advisor, not unilaterally, because the statute has not been amended and the ruling may be overturned on appeal. The risk of filing on the basis of a non-binding ruling is that the tax administration may reject the claim and assess additional tax plus interest, requiring the landlord to pursue the matter through the economic-administrative appeals process or the courts.

For the broader non-resident tax framework, see our IRNR guide. The full list of deductible expenses beyond mortgage interest is in our rental tax deductions guide. If you are selling, the 3 per cent retention on capital gains also applies to non-residents. Short-let owners in Andalusia should check the tourist let tax compliance guide, and non-resident mortgage borrowing is covered in our non-resident mortgage guide.