Deduction of expenses for rental income: What you need to know

Rental income, that is income derived from the rental of real estate properties, is subject to income tax. However, property owners can reduce their taxable base by deducting a number of expenses. The deduction of expenses is therefore an important lever to optimize the taxation of rental income. This article details the main deductible expenses, the conditions to be met, and strategies to maximize tax benefits.

The main deductible expenses

Several categories of expenses can be deducted from rental income, under certain conditions:

• Interest on loans: The interest on loans taken out for the acquisition, maintenance, or improvement of a real estate property is deductible. This includes loan interest, processing fees, and insurance related to these loans.
• Maintenance, repair, and improvement work: Expenses incurred for the maintenance and repair of the property are deductible, provided they do not constitute a substantial improvement to the property. Improvement works are also deductible if they do not change the structure or consistency of the property.
• Insurance premiums: Insurance premiums against rental risks (fire, water damage, etc.) are deductible, as well as borrower insurance related to real estate loans.
• Condominium fees: Condominium fees paid by the owner are deductible, except for expenses recoverable from the tenant.
• Management and administration fees: Rental management fees, whether entrusted to an agency or carried out by the owner, are deductible. This includes management fees, bailiff fees for lease drafting, and litigation costs.
• Property taxes: Property tax and related taxes, such as refuse collection tax, are deductible from rental income.

Conditions for the deduction of expenses

For expenses to be deductible, several conditions must be met:

• Expenses must be incurred in the interest of the property: Expenses must be directly related to the maintenance, acquisition, or improvement of the real estate property.
• Expenses must be actually paid: Only expenses paid during the tax year can be deducted, even if they concern previous or subsequent periods.
• Expenses must be justified: The owner must keep all receipts for expenses incurred (invoices, bank statements, insurance contracts) to present them in case of a tax audit.

Applicable tax regimes

The deduction of expenses mainly applies under the real regime, which is mandatory for owners earning more than €15,000 in annual rental income. This regime allows for the deduction of all actual expenses. For owners earning less than €15,000 in rental income, the micro-land regime applies by default, with a flat-rate deduction of 30% on gross income, without the possibility of deducting actual expenses.

Concrete examples

Let's say a property owner receives €20,000 in annual rent for a real estate property. He has paid €5,000 in loan interest, €3,000 in repair works, and €1,000 in insurance premiums. Under the real regime, he can deduct €9,000 in expenses, thereby reducing his taxable base to €11,000. Opting for the micro-land regime, he would benefit from a 30% deduction, amounting to €6,000, leaving a taxable base of €14,000.

Legal texts governing the deduction of expenses

The deduction of expenses for rental income is regulated by the General Tax Code, in particular articles 31 to 41. These articles specify the conditions for deductibility of expenses, the categories of eligible expenses, and the reporting obligations of owners. It is essential to comply with these provisions to avoid any tax adjustment.

Conclusion

The deduction of expenses is a key element in optimizing the taxation of rental income. By understanding deductible expenses and the conditions to be met, owners can reduce their taxable base and maximize their tax benefits. It is recommended to consult a tax advisor to ensure that all expenses are correctly declared and deducted, in order to minimize the tax burden while remaining compliant with legal obligations.