Unpaid rent: what property owners can do to avoid taxes

In tax filings for the past 2023, homeowners risk facing with up to 45% tax on unpaid rentbecause the, if they don’t follow a certain proceduretax service will continue to charge tax as if it were collected in the normal way.

The tax filing process will begin within the next month, meaning thousands of property owners will have to… hurry up, unless they want to be taxed on non-existent income.

Required condition is that by the time the deadline for filing the annual income tax return was issued against the tenant payment order, tenancy order, or court order for eviction or rent, or a claim for eviction or rent has been filed against the tenant with proof of service and clear photocopies of these documents to the tax office before filing the return. In particular, the law provides:

• A payment order or order for the return of rent has been entered against the tenant, or a judgment for eviction or judgment of rent has been entered against the tenant, or an action has been filed against the tenant for eviction or judgment of rent.
• Submit photocopies of any rulings, judgments issued, or lawsuits filed to the IRS.
• If the required documents for the return of unpaid rent are not submitted, the amounts reported as unearned income will not be included and the IRS will proceed to re-clear the return, taxing those amounts.

Therefore, property owners with uncollected rent can avoid being taxed at uncollected income rates in 2023, provided they complete the above procedures before the tax filing deadline.

According to the current tax scale, annual net taxable rental income is taxable from the first euro based on the scale to which the rates apply:

• 15% for the first 12,000 euros of income.
• 35% on the next 23,000 euros, i.e. for part of the income from 12,001 to 35,000 euros.
• 45% on the portion of income over 35,000 euros.

Rent not received during 2023, is filled out in codes 125-126 of form E1 of the tax return. In the case of uncollected rental income from real estate declared in the previous tax year in codes 125-126 and received during 2023, the total amount is declared in the appropriate columns of Form E2, and individual amounts by category of land or property are transferred to the appropriate codes of this sub-table.

According to the latest available data, 4,037 taxpayers with income(s) from real estate rushed to fill out special “columns” E1 and E2 in 2022 to avoid an inflated tax clearance, on income of about 12.5 million euros that was received only from paper. However, due to the rapid increase in rents, the debt is likely to increase several times.

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