Tax deductions for renting to university students

The rental of real estate to university students represents an opportunity for both residential property owners and students, who have a typically practical approach to the rental market: they consult the Internet and evaluate the most convenient offers. Augusto Cirla and Massimiliano Poppi, partners of the Italian firm Talea Tax Legal Advisory, explain the tax deductions for university student rentals. Not that leases of real estate to students fall into a "typified" category and are expressly regulated by the Ministerial Decree of 16/01/2017, which replaces the previous Ministerial Decree of 30/12/2002.

Lease agreements for students can be stipulated in the municipalities where universities, distance university courses and specialisation courses are located, and in higher education institutions, as well as in neighbouring municipalities and if the tenant is enrolled in a degree or post-graduate training course (such as a masters, doctorate or specialised degree), in a municipality other than the municipality of residence.

The law makes no distinction between students currently studying and those who aren't. It should also be noted that such contracts may be signed by one or more students or companies for the right to study and must comply with the form criteria set out in the copy attached to the Ministerial Decree.

Also this type of contract must respect some essential elements, concerning, in particular, the amount of the fees, the duration, automatic renewal, the right of withdrawal of the tenant, the prohibition of subletting and the amount of the security deposit.

The amount of the rent is defined in specific local agreements, based on the values relating to specific homogeneous areas or to any particular areas. Such agreements may, however, identify upward or downward variations in the rental values, in relation to the duration of the contract. 

The duration of student leases can vary from a minimum of six months to a maximum of three years; the duration is renewable at the first expiry date, unless the tenant cancels the lease, to be communicated at least one month and no later than three months before the term. There is no similar option for the lessor and therefore the duration of the lease would seem to depend exclusively on the will of the student. However, the landlord does have the right to prove that the tenant's study needs no longer exist.

In the case of multiple tenants, i.e. if the contract is made out to several students, partial withdrawal is allowed. Therefore, if one or more students decide to exercise the right of withdrawal, the lease continues with respect to the remaining student tenants. It is to be excluded that they may unilaterally decide to replace the withdrawn tenant with another student without the landlord's consent. Furthermore, in the presence of a single contract in the name of several students, it must be considered that the withdrawal of one of them forces the other tenants to bear a pro-rata rent proportionally higher than that originally agreed.

Subletting is prohibited, which occurs when the property is occupied by a person who is not a guest of the tenant and not related to him. Moreover, it is stated that the amount of the security deposit must not exceed three months' rent.

Failure to comply with the requirements of the law, implies the nullity of the clause that establishes the duration, but not of the one with which the rent is freely quantified, provided that this has been validly agreed by the parties in the exercise of their negotiating autonomy.

From a fiscal point of view, there are benefits, provided for by law, which are addressed to both the landlord and the student tenant. More specifically, the Budget Law 2020 (Legge di Bilancio 2020) has confirmed the benefits already in force, namely:

• in the case of a lease at an agreed rent, for the lessor the taxable income determined in accordance with art. 37 of the TUIR (Italian tax law) is further reduced by 30%;
• in the case of the "cedolare secca" taxation system (flat-rate income tax on letting out a house or flat), the taxation of rental income takes place at a rate of 10%, replacing the income tax (IRPEF) and the surcharges. This option also entails exemption from the obligation to pay stamp and registration taxes.

The option of cedolare secca can also be exercised by the owner with respect to housing cooperatives for rent or non-profit organisations. An essential condition to benefit from the facility is that the properties are subleased to university students and that the relevant data are available to the municipalities, with the waiver of updating the rent.

With reference to the tenant, there is an income tax deduction relating to the expenses incurred by university students outside the premises for rent. Once the requirements of the law have been met, there will be a deduction (even if the expenses have been incurred by dependent family members for tax purposes) equal to 19% of the rent paid, with a maximum of 2,633 euros per year. It should be noted that, as stated by the Budget Law 2020, from 1st January 2020, in order to benefit from the 19% tax deduction for student rent, it will be necessary for payments to be made by traceable methods, i.e. cheques, bank transfers, debit cards or credit cards.