Rental accounting | Tax regulations | Parental purchase

Remember to calculate your taxable income from renting your home

If you rent out your entire home, have room rental only or if you have parental purchases, your rental income is generally taxable. You must remember to estimate your taxable income from the rental and report it to the Tax Agency, even if you have a foreign property that is rented.

It is important that you know the tax rules for renting real estate. If you do not have the surplus or the will to comply with the rules, we advise you to seek professional advice.

In tax terms, a distinction is made between two main concepts of rental. Taxation depends, first of all, on whether it is a partial rental or a commercial rental:

Commercial rental: If you rent out your entire owner-occupied home for a period of more than 12 months and at the same time do not live in it, it is a commercial rental. This means that the income is taxed as personal income.

Partial rental: If you rent out your own home for a period of less than 12 months or have a room rental, it is a partial rental. This means income is taxed as capital income.

Partial rental

For partial rental, you can choose between a floor deduction or the accounting method.

Bottom deduction

As of 2018, you can choose between the following two methods:

1) The floor deduction is the simplest method, and provides a base deduction of 1.33 percent of the property value, but always at least. DKK 24,000. You only have to pay tax on the part of the rental income that exceeds the base deduction.

2) From 2018, another option for bottom deductions has appeared. The new rules provide for a flat bottom deduction of 28,600 in 2019. You must pay tax on 60 percent of the portion of the rental income that exceeds the bottom deduction. You have the freedom to choose which of the two methods you want to use. The size of the property assessment and rental income will be crucial to what best pays off.

Accounting method

When choosing the accounting method, you will have to pay tax on the rental income after subtracting the actual expenses. It is necessary to prepare an accounting of rental income and expenses. Please note that if you choose to use the accounting method, you cannot later switch to the method of base deduction.

Holiday rentals

You can read more about the rules governing holiday rentals on our website by clicking here Holiday rentals.

Commercial rental

In commercial letting, you are considered to be self-employed on income from your rental property, as you operate the rental property at your own expense and risk and with the aim of making financial profit. For parental purchases and simultaneous rental for your child, you are currently covered by the rules for commercial rental.

In this context, the Danish Tax Agency gives you the opportunity to choose between three taxation methods:

• PSL — Personal Tax Act
• VSO - Company scheme
• KAO — Return on Capital Scheme

Whichever method you end up choosing, prepare a rental accounting that shows the result of profits, as well as an inventory of assets and liabilities.

Our advice

We recommend that as a starting point you should choose taxation according to VSO, especially if you already pay top tax, but this requires first of all that you do not mix the rental with your own personal finances. The rental business must be operated in a separate bank account, where rental income is accessed and operating costs are deducted. As a rule, you should seek professional advice when you want to use VSO or KAO, as these models are complex to deal with.

It should be noted that the above tax schemes/rules are not adequate. All areas are not described and we advise you to seek concrete advice.

Contact Us

Over the years, we have built up professional knowledge and great expertise with rental properties. Our expertise lies in two business areas: taxation and consulting with the purchase and sale of properties.

Feel free to contact us and get a free and no obligation quote. We would like to talk about how we can help you and what solutions you need.

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Disclaimer

‍The above information is for guidance purposes only, and we accept no responsibility for decisions made based on this information without prior individual advice. We accept no responsibility for errors or omissions.

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