Among numerous changes, the New Deal also significantly changed the regulations regarding the taxation of private rentals.
Until the end of 2022, individuals earning income from renting out real estate had the choice of taxing it under general rules – according to the tax scale – or a flat rate – at 8.5% for income up to PLN 100,000 and 12.5% for any excess. Starting this year, the only tax option is a flat rate. If spouses earn rental income, the PLN 100,000 amount applies jointly to both spouses.
The main feature of flat-rate taxation is that the tax base is income, meaning everything we receive from the tenant. This means we can no longer deduct incurred costs (utilities, renovations, loan interest). The flat-rate tax is automatically calculated and deposited into a tax micro-account monthly or quarterly (at the taxpayer's discretion). The settlement period is determined by the first payment date. Tax is due by the 20th day of the month following the end of the month or quarter, respectively. The quarterly settlement period must also be confirmed in the annual tax return (PIT-28). This return must be filed between February 15th and April 30th of the following year. In the return, you can also designate a public benefit organization to which you wish to donate 1.5% of your tax (this rate has increased by 0.5 percentage points).
To reduce the tax due, it's worth considering a properly worded lease agreement. If the costs of utilities and cooperative rent are borne by the landlord and included in the rent, they are included in the flat-rate tax base. However, if the agreement stipulates that these fees are borne by the tenant, even if they are obligated to pay them through the landlord, the tax base will consist solely of the rent.
Tax losses from previous years can also be reduced by settling tax losses. If a private rental income previously accounted for under general rules has generated a loss, it can be deducted from income. Losses from private rental income can be deducted within five years.
It should also be remembered that income taxed at a lump sum rate is not taken into account when calculating the solidarity levy.
A flat-rate tax on income from private rentals also violates the principle that each taxpayer pays tax on their own income. If the property is jointly owned by a spouse, one spouse may settle the entire income from the rental of such property.
Until recently, tax authorities argued that, due to the number of properties rented or the organization of the rental process, a taxpayer earned income from business activity, not from private rental, and should be taxed as such. This practice was ended by the Supreme Administrative Court, which, in a resolution of seven judges dated May 24, 2021, file reference II FPS 1/21, stated that in order to classify rental income as income from business activity, a taxpayer must take steps to clearly separate the enterprise by creating an organized set of tangible and intangible assets intended to serve this activity, build organizational structures enabling the management of this separate portion of the assets, and develop a strategy for this activity (plans for its development, market research to assess the needs of potential tenants, and adapting assets to these needs). Investing surplus funds (obtained from various sources of income) in the purchase of real estate (including premises), which are then rented out, does not support the recognition that these assets are related to business activity. The amount of income generated, as well as the number of properties rented, does not justify the conclusion that this is no longer rental income, but income from business activity. It is the taxpayer who decides whether to "link" certain assets to business activity or to retain them as non-business assets and, for example, lease them out.
However, given the changes described in the taxation of private rentals, it may turn out that in some cases, with large scale and high costs, renting out a property as part of a business may be more advantageous. In such cases, it is still possible to settle the tax on a tax scale (12% on income up to PLN 120,000 and 32% on the excess), or on a straight-line basis (19% regardless of income earned) and deduct the incurred costs of obtaining income. However, those renting properties can no longer deduct depreciation charges for residential buildings (premises) as tax-deductible costs. This does not apply to other properties (offices, warehouses, etc.).
This article is for informational purposes only and does not constitute legal advice.
Legal status as of February 13, 2023
