Closed properties: How to make renovation money with…tax-free rent

The Ministry of Finance aims to address the growing housing problem by offering a dual incentive to taxpayers: a subsidy for the renovation of vacant properties and tax-free rental income. The “Renovate – Rent” program provides a subsidy of up to €8,100 for renovation expenses, while the income from the rental remains tax-free for three years.

Let’s see an example:

The owner of a 90 sq.m. apartment, which has been vacant for the past three years, decides to utilize the “Renovate – Rent” program as outlined in the new tax bill.

The owner undertakes work such as interior painting, floor replacement, and bathroom and kitchen renovations. The renovation costs amount to €13,500. Through the program, the owner receives a 60% subsidy, i.e., €8,100, while 50% of the subsidy (€4,050) can be provided in advance upon approval of the application. After the renovation, a lease agreement is signed for three years with a monthly rent of €500. Since the property had been vacant for three years, the rental income is tax-free.

What the owner gains

1. Reduced renovation cost: They invested €13,500, but effectively paid only €5,400 after the subsidy (€13,500 – €8,100 = €5,400).
2. Tax-free rental income: They earn €500 per month from rent, totaling €18,000 over three years, without income tax.
3. Asset utilization: A property that had been vacant gains value and generates income. The €5,400 investment is recouped in about 10 months, and the rental income remains tax-free!

Detailed measures included in the tax bill

“Renovate – Rent”

The program covers 60% of renovation costs, up to a maximum of €13,500.

Additionally:

• 50% of the subsidy can be provided in advance.
• The measure applies retroactively to applications submitted from April 8, 2024.
• The renovated property must be leased on a long-term basis (at least three years).

Conditions for the subsidy

• Expenses must be paid electronically.
• The lease must have a minimum duration of three years.

Tax-free rental income

Homeowners of properties up to 120 sq.m. who open their properties for long-term lease are eligible for zero income tax for three years, provided that:

1. The income is derived from leases lasting at least three years, with contracts signed between September 8, 2024, and December 31, 2025.
2. The property was declared as vacant (Form E2) or not rented during 2022–2024.
3. No rental or short-term rental declarations were made during the leasing period.

The tax exemption ceases if the property remains vacant during the lease period or is used for short-term rental.

Certainly, some might consider bypassing the system by carrying out renovations without receipts to avoid VAT, rather than utilizing the subsidy. However, from December 1 onwards, monitoring of building and related materials will change with the implementation of the Digital Shipping Note. Given this new framework, the subsidy and tax exemption on rentals may ultimately prove to be more attractive options compared to “under-the-table” transactions.

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