Question: We work and live in the US and own a property in Florence. We are going to rent it to a student for a year except for July and August. The renter will be paying 550 euro/month plus utilities. Our management company informed us that we can opt for a 21% flat tax or regular taxation based on standard income brackets. Also they told us about the duty to file the lease agreement with the local tax office for registration. They suggested that we talk with an Italian tax consultant in order to make an informed decision about the taxation system to adopt. I wonder whether you can please provide some information to help us deciding who to proceed.
Answer: Property owners who are not Italian residents in general find more opportune to opt for the 21% flat tax (“cedolare secca“) than the standard Italian income brackets. See why below:
“You can only deduct a flat 5% of rent; you cannot write off any expense“
1) In Italy you can only deduct a flat 5% of rent; you cannot write off any expense from your rental income, even if it relates to your rental, e.g., plumbing repair, condo association fee, home insurance;
2) If you are not an Italian resident, you would very unlikely be able to write off from the Italian income any personal deductions (e.g., children, education, medical);
3) Property owners have to file a tax return when the rent is higher than EUR 500 per year; based on standard brackets, rental income up to EUR 28,000 is subject to a 23% income tax in addition to approximately 2.5% local taxes (Regional tax and City/Township tax);
4) When you start a new lease and you mention in it that you opt for the 21% flat tax the lease agreement registration is exempted from the registration tax and stamp duty. If you do not opt for the flat taxation the lease agreement is subject to registration, tax which is 2% of the annual rent amount, and stamp duty, which in general is EUR 64 or EUR 128, depending on the amount of pages used for the lease agreement. When these charges are applicable it is customary for the tenant and the landlord to split the lease contract registration tax and for the tenant to fully pay for applicable stamp duty.
As you can see, in general there are multiple reasons to prefer the 21% flat tax versus the regular bracket system. For more information on this topic type “rent” in the search button of this page or check also this article about how the 21% flat tax works.
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