How are taxes calculated on rental income in Italy? Let's see what it says in the Italian Budget Law 2019 and the draft law on fiscal simplification, a new amendment to the growth decree.
Starting from 2020, the taxation of income from long-term property rental in Italy will change. This follows the provisions of the Budget Law 2019, which extended the ‘Cedolare secca’ flat-rate tax scheme to commercial real estate category C/1 (for properties of less than 600 square metres), and the draft law on tax simplification, which will change the method of calculating the tax base for residential property leases as of 1st January 2020, so that only the rents received will contribute to the taxable income.
Tax on long-term rentals of residential property in Italy
For the taxation of rental income from residential properties with contracts entered into before 1st January 2020, the current rules set out in Article 26 of the TUIR (dpr 917/1986) apply. This means that even rent which remains uncollected also contributes to the amount of income to be taxed, unless you can reclaim it once the eviction notice has been certified. However, the recovery mechanism is complex and it is necessary to recalculate the tax declaration considering only the rents actually received to be able to obtain a tax credit. The income for rented housing is taxable either on the IRPEF Italian income tax or with with the Cedolare secca at 21% (10% in the case of agreed rental contracts).
For the taxation of rental income of residential properties with contracts entered into after 1st January 2020, only the money you actually receive will be subject to tax. Note that this only affects residential properties and that the fact that you never received the rent you were owed must be proven with a notice of eviction for late payment or an order for payment. With regard to the method of taxation, you can use the IRPEF or the Cedolare secca with a rate of 21% or 10%.
Tax on long-term rentals of commercial property in Italy
Leases of commercial real estate are currently excluded from the new tax simplification law. For commercial real estate, therefore, the rules for determining the taxable amount dictated by Article 26 of the TUIR (dpr 917/1986) will continue to apply. Therefore, both collected and uncollected rentals will contribute to the taxable income and, unlike what is provided for in the case of arrears on the part of the tenant for residential property, there is no possibility of recovering the taxes you have paid on the unclaimed rent.
For commercial properties, the Budget Law 2019 has provided – only for 2019 – the possibility of applying the Cedolare secca tax rate if you lease a building of category C/1 of less than 600 m2. For all other types of property, it is necessary to use the IRPEF.
From the original Italian article: Otto vie per tassare i redditi da locazione (Italia oggi)