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what to deduct and benefits to consider

Landlords have IRS obligations, but also some benefits. Meet them and learn how to proceed.

What are the obligations of landlords at the IRS? And what benefits can you take advantage of to pay less tax? If you have rented properties, find out what you have to do to fulfill your obligations and to enjoy some advantages.

In addition to communicating the lease contract and issuing electronic receipts, the relationship between landlords and the Tax Authority covers other types of obligations. Declaring income received is one of them.

However, being a landlord also brings tax benefits, namely with the IRS. Opting for longer contracts or lower rents and doing works are some of the ways to pay less tax.

Landlords’ income in the IRS: how to declare?

Being a landlord implies, as soon as the value of the rents is declared to the IRS, in Annex F, which is intended for property income. However, you can deduct some expenses and, in some cases, see reduced taxation on these properties.

It should also be borne in mind that, if you allocate the property to the activity of Local Accommodation, you can declare this income as category B. In this case, and depending on the volume of billing, you can stay in the simplified regime or opt for organized accounting. In the latter case, and with the necessary adaptations, taxation is carried out in accordance with IRC rules.

One piece of data to keep in mind is that, if the accommodation is located in a containment area, the coefficient to be applied to the yield is 0.50. That is, the amount of income subject to tax is higher. Thus, the IRS rate is applied on 50% of income.

What is the IRS rate?

The tax rate to apply depends on several factors.

If the rents are declared as property income, the difference between the income obtained and the expenses incurred with the property is considered subject to taxation. That is, it is on this amount that the landlord will pay the IRS.

The rate to be applied is 28%, in case you do not opt ​​for aggregation. If you add these incomes to the rest, the progressive rate applies.

It must be taken into account, however, that this option only pays for those with lower incomes. That is, for those who, once all income is added up, are subject to a rate of less than 28%, which only happens to those in the top echelons of the IRS.

IRS exemptions and reductions for landlords

If the landlord has joined the Affordable Lease program, he may benefit from total IRS exemption on property income.

Income from the Real Right of Durable Housing (lifetime lease) must also be included in the IRS declaration.

It should be recalled that, recently, the Government presented a set of measures to tackle the housing problem in Portugal. Although they are still under public consultation, some of these measures, if approved, could have an impact on the 2023 IRS, to be delivered in the 2024 IRS. See our article on the subject:

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Whoever sells a house to the State does not pay capital gains: measures for Housing

Fee reduction based on contract length

Landlords who want to save on IRS can opt for leases with a longer duration, as they benefit from a reduction in the autonomous rate to switch off.

Thus, for contracts with a duration equal to or greater than two years and less than five years, there is a reduction of 2%. For each renewal of the same duration, a further 2% is reduced, up to a limit of fourteen percentage points.

Let’s see, then, the applicable rates depending on the duration of the contract:

  • Less than 5 years: 28%
  • More than 2 and less than 5 years: 26%
  • Between 5 and 10: 23%
  • 10 to 20 years: 14%
  • 20 or more: 10%

What are the tax benefits for landlords?

In addition to the IRS and IRC exemption under the Affordable Lease program and the reduction of the autonomous rate, landlords can benefit from some situations provided for in the Statute of Tax Benefits.

Thus, there may be deductions from the collection, up to a limit of 500 euros, of 30% of the charges for the rehabilitation of properties in urban rehabilitation areas. This deduction also applies if they have been rehabilitated, have a rent upgrade, and have a lease prior to 1995.

Property income in urban rehabilitation areas may be taxed at a rate of 5% if it comes entirely from the lease of real estate. These must have been recovered under the terms of the respective rehabilitation strategies or subject to phased updating of rents.

What expenses can the landlord deduct from the IRS?

Landlords can deduct from the IRS some of the expenses related to the management and maintenance of the property, including works. Thus, as long as these expenses can be supported by an invoice, you will pay less tax.

In the case of apartments, the expenses they have to bear as owners also count for IRS purposes. The same happens with the Municipal Property Tax (IMI) and the Stamp Tax.

Expenses with conservation and maintenance works carried out in the previous 24 months can also be deducted, provided that, however, they do not use the property for any purpose other than the lease.

The Additional IMI (AIMI), furniture, appliances and comfort or decoration items are not part of the expenses that landlords can deduct from the IRS.

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