2024-04-19 14:00:46
Apartment rentals have become a popular source of side income in the Czech Republic in recent years. However, if landlords do not want to get into trouble with the tax authorities, they should bear in mind that even this income is subject to taxation. There are only a few weeks left to submit your tax return electronically – until May 2.
There are several ways to own an apartment or house, it can be owned personally, cooperatively, owned by a private person, or even by spouses, or included in the business property of a company or entrepreneur. The type of ownership largely determines how the income from the apartment will be taxed. In this article, we will advise how to tax rental income in the most common situations, i.e. in cases where it is not included in business property and is not an occasional rental.
When will it go without confession?
The law does say that anyone who rents an apartment or other real estate must tax their income. However, this does not automatically mean the obligation to file a tax return. If the taxpayer only has income from renting an apartment and their amount for the year 2023 does not exceed 50,000 crowns, he does not have to file a tax return. An employee whose other income (except income from employment) does not exceed the amount of 20,000 crowns is also exempt from the obligation to fill out a form for the tax office. This amount includes all income, not just rental income.
If an employee is required to submit a tax return, he cannot ask his employer for an annual tax settlement. In such a case, he will receive a certificate of taxable income from the employer, which will show the amount of his income from employment and the amount of withheld tax advances, which he will include in his tax return. At the same time, he will include income from renting an apartment in his tax return.
What to write in the confession
In the tax return, the lessor shall state the income that he actually received from the lessee in the given year. For taxation, it is not decisive for what period the rent is paid to the lessor, but when the lessor physically received the rent. For example, rent for December 2022 paid in January 2023 is 2023 income.
Taxable income does not include advances for services related to the use of the apartment provided by the lessor in the event that these services are billed to the tenant after the end of the year with the actual expenses for these services. Typically, this will be, for example, payments for heating, hot water supply, cleaning of common areas in the house, use of the elevator, supply of water from waterworks and waterworks, drainage of waste water through sewers, lighting of common areas in the house, and the like. These payments are not included in the lessor’s tax expenses either. However, a different situation would arise if some services were provided by the lessor. Then the lessor must include these services in his taxable income, and therefore also state them in the tax return.
Spouses and co-owners
If the income from renting an apartment flows into the joint property of the spouses, it is taxed only for one of them. With regard to the existence of two tax rates for natural persons (15 percent and 23 percent), in practice it is advisable to think about which of the spouses it is more optimal to tax income from rent. If one of the spouses has an income exceeding 48 times the average wage, i.e. more than 1,935,522 crowns for the year 2023, it is appropriate to tax the income of the other spouse, who has a lower income. The rental income will thus be taxed at a rate of 15 percent, while the higher-earning spouse’s income would be taxed at a rate of 23 percent.
All co-owners tax income from renting an apartment in shared ownership in their tax returns, as a rule, in proportion to their co-ownership shares. However, they can also agree on a different taxation ratio. Such an agreement should result from a written contract. If the co-owner will tax a different amount of income than his co-ownership share, he cannot apply flat-rate expenses, in which case the co-owner must apply expenses in the actual amount. Expenses related to the apartment in co-ownership are divided in the same ratio as income.
How to claim expenses
Landlords have two options for applying expenses. The first method is actual expenses, the second is the so-called flat-rate expenses, or expenses determined as a percentage of income.
Fixed expenses
Landlords often choose the option of a flat-rate deduction of costs in the amount of 30 percent of income, up to a maximum of 600,000 crowns per year. If income from renting an apartment exceeds the amount of 2 million crowns, only the mentioned 600,000 crowns can be applied to tax expenses, 30 percent of the achieved income cannot be calculated.
The flat-rate expenses option is the easiest for landlords. The lessor is only obliged to keep records of income and receivables arising in connection with the lease. Flat-rate expenses include all expenses incurred in connection with obtaining income from rent, i.e. also depreciation of assets whose depreciation was started in the past. Depreciation cannot be suspended during the application of flat-rate expenses.
Actual expenses
In some cases, it may be more worthwhile for apartment owners to claim real, demonstrably incurred costs, especially owners of apartments in personal ownership, mainly because of the already mentioned depreciation.
On the other hand, it is necessary to realize that the application of actual expenses may be associated with additional costs for determining the entry price of the apartment for the purpose of depreciation and then with a higher administrative burden. In such a case, lessors are obliged to keep records of income and expenses spent on achieving, securing and maintaining income in chronological order, records of tangible assets that can be depreciated, records of the creation and use of a reserve for repairs of tangible assets, if they create one, records of receivables and debts, or payslips, if they pay wages. Landlords may also choose to keep accounts, which is not normally the case in practice.
The most significant item among the actual expenses is usually the depreciation of the apartment. Furthermore, expenses for maintenance and repairs, interest from the mortgage for the purchase of real estate, insurance of the rented property, real estate tax (if paid), or flat-rate transport expenses.
How to fill out a tax return
Income from the rental of immovable property, in our case an apartment, is entered in appendix number 2 of the tax return. First of all, it is necessary to check whether the lessor applies flat-rate or actual expenses and whether it is income from the joint property of the spouses. Subsequently, fill in income from renting an apartment in line 201 and 201a, and related expenses in line 202. You enter the difference between income and expenses on line 203. If the lessor is not required to make adjustments to the tax base on lines 204 and 205, the partial tax base on line 206 will be the same as the amount shown on line 203. See the following figure.
Photo: KODAP Liberec
The partial tax base stated on line 206 of the appendix shall be entered on line 39 of the tax return. The tax return is then filled out in the usual way, i.e. the taxpayer fills in additional income, applies deductible items and tax discounts.
To fill out the tax return form, you can use the guide on the Mojedane.cz website of the online tax office – see the following image. There is a separate section for Rent in this guide. The guide is interactive and instructive.
Photo: KODAP Liberec
Rent and mandatory insurance
Finally, it is worth remembering that, unlike business income, rental income is not subject to social and health insurance contributions. The lessor of the property must therefore check his obligation only in relation to the tax authority.