If you own a property and have decided to rent it, you need to know a few important facts. Firstly, even if you are not an entrepreneur and you rent the property as an ordinary person – a natural person – you are obliged to pay tax on this income. The amount of tax also depends on what expenses you can claim in connection with the rental of the property. Read what is important to know about rental property in connection with its taxation.
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Legal limits
Income from the rental of real estate is primarily dealt with by the Income Tax Act and partly – as far as leases are concerned – by the Civil Code. From the point of view of the accountant, of course, also the Accounting Act. You do not need a doctorate in law and a higher professional accounting to find your footing in this topic. Complete information, including the questions answered, was prepared by experts from the Financial Administration.
Basic facts
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The real estate rental income tax base is the difference between rental income and expenses
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No flat-rate expenses can be claimed for rental income from real estate
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It is not possible to recognize a tax loss if the expenses are higher than the rental income
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Rental income not exceeding € 500 in the tax period – per year is exempt from tax
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Only rental income over € 500 will be included in the tax base
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The tax expenses incurred must be provable by tax records or accounting
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Rental income is passive – if it is the only income, it is not possible to apply the non-taxable part of the tax base
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The tax liability on rental income – if any – must be fulfilled by filing a tax return
Rental income is rent received for the tax period, meaning per year. We recommend that you include the price of energy in the rental agreement so that you can claim it in the expenses.
What we can include in the expenses
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Energy costs – electricity, gas, water, heat
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Common services related to renting – fees for internet access, television, use of elevator, lighting in common areas, waste collection
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Other expenses specified in the lease agreement – the price of the equipment, including appliances
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Other expenses – real estate tax, insurance, mortgage interest, contributions to the repair fund, depreciation – but only if the real estate is included in commercial property
Our tip
Tax deductible expenses for the purchase of equipment are those that do not exceed € 1700 for each piece of furniture or appliance. But beware, this does not apply to built-in furniture and built-in appliances – unless you have a property included in commercial property.
To include or not to include real estate in commercial property ?
Anyone who rents a property, including an ordinary person – a non-entrepreneur can include whether they want to include it in their business property. The option he chooses has an impact on the application of the expenses incurred on rental income, but also on the tax on the sale of the originally leased property.
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What is the difference ?
If the property is included in commercial property, its owner can also claim expenses for tax expenses for:
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Acquisition of rented real estate
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Its technical evaluation
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Repairs and maintenance
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Other related expenses related to use: expenses for energy, payments to the fund for operation, maintenance and repairs, real estate tax, interest on loans and borrowings for the purchase of rented real estate, insurance
If the lessor does not have real estate included in his commercial property, he cannot claim expenses related to:
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Acquisition of rented real estate
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Its repair or technical improvement
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Insurance and real estate tax
These expenses are considered to be related to the use of his personal property for personal consumption. However, he may incur these expenses when selling the property.
Did you know ?…
… if the property is rented out by a non-shareholder spouse, can they agree whether the rental income will be taxed by only one of them or by both in any proportion? Here it is logical to choose the right – more advantageous option.
It’s not as complicated…
…as it probably looks at the first glance. However, that is our view, because we deal with this topic professionally. Rental taxes are a fairly specific topic, and if you’re not sure, feel free to contact us. Just as you don’t need to know how coffee is grown, harvested, stored, roasted and packaged to enjoy it daily, you also don’t need to master all the nuances of legislation and accounting details related to renting and taxing. We are here for that, we will be happy to advise you help you figure out what option would work best for you.