With the rents you receive as part of a rental investment, you can prepare yourself a nice pension. But a question often comes up when considering buying an apartment or a house for rent: “Is rental income taxed? Is paying tax on your rental income necessary?”.
In fact, the taxation of the rents collected will depend on the use of the leased property.
Paying tax on your rental income concerns tenants as well as owners and also free occupants or persons benefiting from official accommodation. It is established annually, depending on your situation on January 1 of the tax year. Collected on behalf of the municipality where your home is located (or possibly the group of municipalities to which it belongs), the housing tax contributes to the financing of services provided to residents, community facilities, etc. You must pay it for your main residence but also for any secondary residences.
How to calculate the housing tax?
The amount of the housing tax depends on several parameters, including the area of the accommodation (parking lots and outbuildings count), its condition. The administration calculates the tax base by applying certain allowances to the gross rental value of the premises. The housing tax is thus equal to this tax base multiplied by the rates set by the local authorities.
Municipalities can also apply a 20% increase in the housing tax on furnished accommodation not allocated to the main dwelling (and therefore in particular second homes) if they are located in areas affected by the tax on housing. vacant housing. However, this increase cannot be applied when the taxpayer does not live permanently in the accommodation concerned for reasons beyond his control such as professional constraints, accommodation in a retirement home, etc.
Investment in Rental Real Estate: What Taxation?
If you rent unfurnished accommodation and your tenant makes it their main residence, you are taxed on the cadastral income indexed according to the coefficient for the current year. This amount is also increased by 40%.
You rent a house with a cadastral income of 1000 €. The taxable amount for the year 2017 (for which the indexation coefficient was set at 1.7491) is then: 1,000 x 1.7491 + 40% = € 2,448.74. This amount is added to your income and is taxed at the personal income tax rate, just like your salary.
Taxation on a Furnished Rental
If the accommodation you are offering for rent is furnished, 40% of the cadastral income is considered as movable property. On this amount, you benefit from a standard deduction of 50% for costs and will be taxed at 15% on the remainder. As for an unfurnished rental, taxes will be calculated on the cadastral income increased by 40%.
If you still have an outstanding loan on this property, you can deduct the interest already paid from taxable real estate income. In this case, it is recommended to distinguish in the rental agreement between the rent for the furniture and the rent for the building.
Taxation on the Rental of a Student Accommodation
If you want to rent out a student accommodation, the taxation is the same as that on rental income for private use.
Rental for Professional Use
If you rent out a property for professional use, the tax is on the net rent. This must at least correspond to the cadastral income increased by 40%. To calculate the net rent, all you have to do is deduct 40% (as a flat-rate fee) from the gross rent (i.e. the rents actually received as well as any other rental benefits).
Again, if you have not yet finished paying the mortgage on the property in question, mortgage interest already paid can be deducted from taxable property income.
If the property you are renting is used for both private and business purposes, you should distinguish between the two and take into account the two rental income tax regimes. It is therefore advisable to detail the private and professional use in the rental agreement in order to avoid possible tax disappointments.