Taxation of rental income: what can a landlord deduct?
Tax is paid not on the rent but on what remains of it after costs. The difference is large: in a typical studio the taxable income is a fraction of the rent. This guide goes through which costs are deducted, which are not — and which single deduction is not yours to decide at all.
Tax is calculated on the remainder
Rental income is capital income. The taxable amount is obtained by deducting from the rent those costs incurred in earning it.
Taxable rental income = rental income − deductible costs
Tax = 30 % · 34 % on capital income above €30,000
The €30,000 threshold is calculated on all your capital income combined — rents, dividends, capital gains. A single flat rarely exceeds it, but in the year you sell the threshold arrives unexpectedly.
What can be deducted
| Item | Deducted | Note |
|---|---|---|
| Maintenance charge | Yes | for the period the flat is let or available to let |
| Capital charge | Only if the housing company expenses it | See the next section — this one isn't your choice |
| Loan interest | Yes | Interest on debt used to earn income, not the home loan deduction |
| Annual repair | Yes, immediately | Wear is restored to its previous level |
| Improvement | Does not | Added to the acquisition cost, deducted only on sale |
| Other income-earning expenses | Yes | Advertising, letting agency fees, travel to the property, furnishings, credit checks |
| Your own labour | Does not | No value can be claimed for your own labour; materials can |
The common condition is the same for all: the cost arose from the letting activity. Periods of your own use limit the deduction accordingly.
Repair or improvement — the line decides the timing
This is the commonest mistake in practice, and what's lost is not money but time: the improvement doesn't disappear, but it is deducted only in the year of sale.
| Annual repair — deducted immediately | Improvement — to the acquisition cost |
|---|---|
| Painting the walls | A new kitchen at a higher standard |
| Replacing a broken fridge with an equivalent one | Balcony glazing that wasn't there before |
| Replacing worn vinyl flooring with new vinyl | Parquet in place of vinyl flooring |
| Replacing a tap | Enlarging the bathroom |
Rule of thumb: if the flat is restored to its former state, it is an annual repair. If afterwards it is better than when you bought it, it is an improvement. Repairs made during the first year are more open to interpretation than later ones — so document the flat's condition at the time of purchase.
An example in euros
A studio, rent €800/month, maintenance charge €175/month, capital charge €120/month, loan interest €2,500/year, annual repairs €400/year and other income-earning expenses €300/year.
| Item | Per year |
|---|---|
| Rental income | 9 600 € |
| Maintenance charge | − 2 100 € |
| Capital charge (expensed) | − 1 440 € |
| Loan interest | − 2 500 € |
| Annual repairs | − 400 € |
| Other income-earning expenses | − 300 € |
| Taxable rental income | 2 860 € |
| Capital income tax 30 % | − 858 € |
| Left after tax | 2 002 € |
The effective tax rate on the gross rent is 8,9 % — not 30 %. This is exactly why comparing rental yields after tax is a different exercise from comparing them before.
If the housing company capitalises the capital charge instead of expensing it, it isn't deducted: the taxable income is €4,300 and the tax €1,290. The difference is €432 a year for the same flat, at the same rent and with the same charge.
The capital charge isn't your choice
Deductibility depends on how the housing company treats the charge in its accounts. An expensed charge is income for the company and a deductible cost for the shareholder. A capitalised charge is booked to the company's equity and gives the shareholder no annual deduction — it is added to the shares' acquisition cost.
The shareholder can choose neither, and the choice doesn't appear on the invoice. It is found from the property manager, from the certificate or from the notes to the financial statements — and it can change from one financial year to the next.
Capital charge: capitalised or expensed →
When the year makes a loss
With leverage the early years are often loss-making: interest and charges exceed the rent. The loss is not wasted.
- Deficit credit — 30 % of the deficit in the capital income category is deducted from tax on earned income. The maximum is €1,400, rising by €400 for one minor child and €800 for two or more.
- The excess is confirmed as a loss in the capital income category and deducted from capital income over the next 10 years.
The practical consequence: a loss-making year is worth declaring carefully, not skipping on the grounds that no tax falls due.
Three things worth doing before the tax return
1. Ask the housing company in writing how the capital charge is treated. One email to the property manager settles the €432 question above, and the answer is worth keeping.
2. Sort renovation invoices into two piles as each invoice arrives — repair and improvement. Done afterwards, the sorting relies on memory, and that is a poor basis.
3. Keep the receipts. A deduction you cannot substantiate is a deduction you don't actually have.
The rental income tax calculator separates repairs from improvements, takes account of how the capital charge is treated and works out the deficit credit in a loss-making year. Included in the Basic tier; the property's basic details and cash flow are free.
Open the tax calculator →Sources and further reading
The Income Tax Act (the capital income tax rate, the deficit credit, carrying losses forward), the Finnish Tax Administration's guidance on the taxation of rental income (deductible expenses, repairs and improvements, treatment of the capital charge). The example is calculated on the assumptions set out here. General information, not tax or investment advice: whether a deduction is accepted turns on the facts of each case, and rates and amounts should be checked with the Tax Administration when filing.