A simple question with a less straightforward answer. Letting your own home is often a valuable investment and can yield a healthy return. As a landlord in the deregulated sector, you also contribute to housing with a high demand. It is important, however, to understand how it is taxed when you let your own home. Be sure to seek expert advice on your specific situation. The explanation below is general and may not fully apply to certain situations.
Only letting rooms in your own home?
If you are letting a room in your own home, you may fall under the room rental exemption for tax purposes. The Tax Authorities (Belastingdienst) specify the conditions for qualifying for this exemption on their website. If your situation meets the conditions, the rental income is tax-free. However, the homeowner’s deemed income (eigenwoningforfait) still applies, and interest costs on a home loan are deductible.
Is the entire home let?
If you do not meet the conditions for the room rental exemption, for example, when the entire home is let, a different tax arrangement applies. Fiscally, the home is considered to move to box 3. In box 3, the value of the home is taxed rather than the rental income*. In box 3, interest costs on a home loan (mortgage) are not deductible. However, a portion of the home loan can be deducted from the home’s value.
*The value of the home
In box 3, the entire value of the home is not considered taxable capital, as a “discount” is applied since a rented-out home is worth less than when it is vacant. This discount, called the Leegwaarderatio, is not very significant in 2023 and may not apply if the home is temporarily rented or rented to family members. The tax-free threshold can be deducted from the value of the rented home.
Tax rates for real estate in box 3
Taxation in box 3 operates in two stages:
- Determine (Fictitious) returns
Until a new plan takes effect, at the earliest in 2027, the tax authorities assume fictitious returns. First, they assess the composition of your assets: savings, debts, and/or investments (such as real estate).
• Savings typically have a relatively low percentage used as returns, which makes sense because interest on savings accounts is generally low.
• Investments, on the other hand, are assigned a very high fictitious return. In 2023, it’s 6.17%.
• Deduction of debts was allowed until 2022, but starting from 2023, the calculation is slightly less favorable.
The calculation is slightly more complex from 2023 onwards, but it boils down to taxing (a portion of) the returns. The tax rate is 32% and will be increased to 34% in the coming years.
Temporary ownership of two homes
Do you have two homes, with one of them being for sale? In that case, you can deduct the mortgage interest from both homes. However, as soon as one of the homes is let, this is no longer allowed, and the let home moves to box 3 and will be taxed as described above.
Municipal taxes and water board levies
The situation with regard to municipal taxes and water board levies changes when a home is let. The owner is no longer a user of the property from that point on and no longer pays the user’s portion of municipal taxes. Of course, the owner is still responsible for the owner’s portion. We have previously discussed this in detail in: Municipal Taxes; Who Pays What?
In a nutshell, and with some exceptions, this is how it works. We cannot emphasize enough that tax rules can vary for each situation. Our partner Van Wezel in Rijnsburg can assess your situation and provide the right advice.