What kind of expenses are tax-deductible?
Regarding rental of an apartment or house, you can claim deductions for the direct expenses of renting.
- The tax rules require that you claim the expenses the year when you pay them.
- Tax-deductibility begins at the time when you start your rental operation. This means that the start date for tax purposes is the date when you begin an active search for a tenant – when you sign a contract with an agent, when you post an advertisement on the web for the first time, or place an advertisement in the local newspaper, etc.
- You can claim expenses only for the period when the rental operation is ongoing – this means that if you use the apartment for personal purposes, no expenses are deductible.
Apartments in a housing company: what can be deducted?
You can claim the following deductions based on the amounts you pay to the housing company
- Maintenance charges
- Water charges
You can also claim other expenses of renting, such as
- Advertisements and fees you pay to your agent when you search for a tenant
- Property insurance premiums
- Travel expenses, on condition that your trips are
- For arranging a showing of the empty apartment, or for meeting with a new tenant to sign the rental contract
- For entering the apartment to perform maintenance or various checks
- For attending the annual general meeting of the housing company’s shareholders
If you drive your private motor vehicle, you can claim 30 cents per kilometre on your tax return for 2023.
Note: You cannot deduct the registration fee or other expenses related to electronic registration of ownership. Instead, you can deduct these expenses later, in connection with capital-gains tax if you sell your apartment at a profit.
The coverage (in Finnish: pääomavastike, rahoitusvastike) can be tax-deductible for you. This means you can deduct the coverage you paid, on the condition that the housing company treats it as part of its annual revenue. Please contact the building manager to find out how the money you paid is booked in the company’s accounting.
If the company collects charges or fees that the company has booked as a balance-sheet reserve, you cannot deduct them. However, you have the right to deduct these in connection with capital gains tax if you sell your apartment at a later date.
Regarding the amounts you pay in order to cover the housing-company loans, it does not matter whether you make a lump-sum payment (in Finnish: lainaosuussuoritus) or smaller monthly payments. Housing companies’ accounting books may contain partial revenue and partial balance-sheet entries. If the housing company where you are a shareholder implements this type of accounting, you need to find out the amounts recorded as revenue, and then deduct that part only.
It is important to differentiate between normal smaller repairs and modernisation i.e. major improvements. Each of these two categories has a different tax-deductibility. Accordingly, if you renovate your rental property and part of the work consists of small repair jobs, often done every year, while another part consists of an improvement project, you need to divide the paid total cost by reference to the types of renovations made.
Note: no deductions are available for the property owner’s work hours, even though you take care of the repairs yourself. However, you can claim travel expenses and the paid cost of the materials (for tax year 2023, the base for travel expense claims is 30 cents per kilometre).
Link to the Tax Administration’s wizard: Tax-deductible repairs in a rental property
Deductions for repair expenses
When annual repair work is done on an apartment or building, it is for maintaining its original operating condition.
Repairs usually done almost every year include
- Painting and decorating
- Replacement of a stove, refrigerator or other appliances
- Replacement of fixtures such as kitchen cabinets and bathroom fittings
- Replacement of a door or window
Costs you pay for repairs commissioned by the housing company can only be deducted if they are revenue in the housing company’s books. Contact the manager of the housing company to find out what the accounting treatment is.
Costs for a repair job you organised need to be deducted during the year when you paid them.
Deductions for improvements
Extensions, alterations, modernisations and other similar work done to an apartment or a building are considered improvements. This is different from a usual repair job because an improvement results in a higher standard or an extension of the apartment or building.
The following are examples of improvements and modernisations:
- Glazing balconies
- Improving heating and ventilation
- Improving foundations and load-bearing structures
- Installing and improving plumbing and drains
- Installing and improving electrical systems
- Converting an unheated storage space into a sauna
Costs you pay for a project commissioned by the housing company can only be deducted if they are revenue in the housing company’s books. Contact the manager of the housing company to find out what the accounting treatment is.
Costs you pay for a project you organised are deductible either through depreciation year-on-year, or as a lump sum at the time when you sell the rental property.
- Annual depreciation is based on a straight line: you are entitled to claim 10% every year. Please keep records and make sure of documenting all the paid expenses and the 10-percent depreciation every year. Fill in the depreciation expense under Rental income – Other expenses on your tax return. If you sell your property or stop renting it before the entire amount is deducted, you can subtract the remaining part from the selling price in your capital gains taxation.
- If you sell, and subtract the costs at that time, you must keep good records on how much you paid for the improvement or modernisation, storing all the relevant documents and receipts. Your calculation of the capital gains resulting from selling will contain less tax.
Example: Lauri decided to renovate the apartment he owns. The wall between the kitchen and the living room was torn down to make the kitchen larger. New cabinets and kitchen appliances were installed. The bedroom got a small new wardrobe section, and all the walls and ceilings were repainted.
Total cost was €8,000. Lauri paid the entire amount in 2023. In conclusion, one-half represented improvement and modernisation: extending the kitchen and building the wardrobe.
The remaining half represented usual repair work, so Lauri is entitled to claim €4,000 for it in 2023. In addition, Lauri can deduct the other €4,000 – the modernisation – in the form of straight-line depreciation across a period of 10 years. This means that Lauri can additionally claim €400 against his 2023 rental income. The deductible depreciation expense for 2023 is €400 = €4,000:10. Moving forward, he can claim the remaining €3,600 during nine years, €400 each year.
It is not uncommon for property owners to buy appliances and pieces of furniture for their rental apartment or house. Typical purchases include a cabinet for storing clothes and a drum dryer.
- If you buy these items for less than €1,200 or having a useful life shorter than 3 years, you are entitled to treat the purchase price as part of your yearly expenses, i.e. you can claim the entire price.
- However, when you buy them for more than €1,200 or if the useful life of the appliances, furniture, etc. is longer than 3 years, you need to perform a depreciation calculation, and then claim the depreciable expense during the upcoming years. Maximum depreciation for these items is 25% per year.
Indicate the amount you claim under Rental income – Other expenses on your tax return. Fill in either a full purchase price or a depreciation expense. The tax rules require that the property owner draw up a list of appliances and furniture containing descriptions, quantities of items, purchase prices (or year-end residual values, if you claim depreciation).
Example. Kirsi spent €2,000 on a dryer. She placed it in the rental apartment she owns. The tax-deductible depreciation expense for year 1 when her tenant starts using the dryer is 25% × €2,000 = €500. This way, the residual value that Kirsi can carry forward to the next year is €1,500. She needs to calculate depreciation accordingly.
For year 2, Kirsi is entitled to claim max. €375 (25% × €1,500) based on depreciation, and this results in a year-end residual value of €1,125.
For year 3, when only a value below €1,200 will remain, she can claim €1,125 in full.
A ‘furnished apartment’ is an apartment where furniture and appliances needed for normal everyday life are readily available – a dining-room table, a bed, a couch, and more.
If the dwelling unit you are renting out is a furnished apartment, the tax rules allow you to choose between a standard deduction based on a formula – or a deduction based on actual cost. The choice you make should remain unchanged over the course of the upcoming years.
If you claim the formula-based deduction, you are entitled to deduct the following amounts monthly:
- Standard €40 per month for one furnished studio or for one rented-out room
- Standard €60 per month if your furnished apartment has more than one rooms of living space
The standard is not affected by how many people live there as your tenants. The monthly amount is intended to cover all the expense items in your dwelling unit. On top of the standard deduction, you are entitled to claim maintenance charges and other expenses as usual.
If you claim actual expenses, you need to perform calculations for either the appliances’ and furniture’s purchase prices or for deductions in the form of depreciation year to year. You must be able to specify your claim and present receipts if so requested. You can find more information on depreciation rules under the sub-heading Purchases of home appliances, movable property.
Claim the actual expenses under Rental income – Other expenses.
If you took a loan to buy the rental apartment or house, the loan is closely related to your activities to gain or produce income. As a result, the interest and the bank’s service fees are tax-deductible.
The Tax Administration receives information directly from banks on their lending and on interest payments. Your loan information is shown on your pre-completed tax return, under “Interest on debts” – Velan korot. Please check your pre-completed return to make sure that the purpose of your loan is stated correctly. It should read “for production of income”. If nothing is pre-filled, add the relevant information under “Interest on debts” – Velan korot. Accordingly, please note that no deductions based on interest and bank fees must be entered under “Rental income”.
Note: if you charge below-market rent, no deductions based on interest and bank fees are available.
Read more
If your rental expenses exceed rental income, the loss can be deducted against your other income from investments and capital. The Tax Administration will grant this deduction automatically.
However, it may be that you have no such income. In that case, there will be a “deficit in the capital-income category”. The Tax Administration compensates for the deficit by crediting 30% from your income tax on wages and other earnings.
In other words, rental losses cannot be directly deducted from rental income – instead, the deduction is granted to you in the form of a tax credit.
Example: Keijo’s rental income for 2023 was €5,000. His maintenance charges for 2023 equalled €2,400 and because the housing company commissioned a major plumbing repair, the housing-company’s loan charge was €8,600. Keijo’s loss is -€6,000 (€5,000 – €2,400 – €8,600).
Besides his rental income, Keijo had no other income in 2023 from investments or from capital. For this reason, he gets a tax credit of 30% for his earned income. The credit for the deficit in capital income is calculated as €6,000 × 30% = €1,800. However, the maximum credit is €1,400. This way, only €1,400 is subtracted from Keijo’s taxes for 2023.
House or other real estate: what expenses are deductible
The direct expenses of renting are deductible. You can only claim the expense items that relate to the house’s rented-out section.
The following can be deducted from rental income from houses:
- Water, electricity and heating bills
- Your payments of real estate tax
- Your payments of insurance premiums
- Rental advertisement expenses, fees of a rental agent
- Travel expenses, on condition that your trips are
- For arranging a showing or for meeting with a new tenant to sign the rental contract
- For travelling to the house to perform maintenance or various checks
If you drive your private motor vehicle, you can claim 30 cents per kilometre on your tax return for 2023.
The meaning of ‘acquisition cost’ is the price paid for the property, i.e. the outlay of money that you needed to make when you acquired the house, building, other real estate. Accordingly, one example of ‘acquisition cost’ is the building’s purchase price.
You can deduct the purchase price of a rented-out building in the form of depreciation year to year. ‘Depreciation’ for getting a tax-deduction means that your building’s acquisition cost, in a series of small steps, is deducted from the income you receive.
The maximum size of the depreciation depends on the building’s type.
- Residential and office buildings: Depreciation rate is 4% of residual (i.e. still undepreciated) value
- Retail units, warehouses, factories, workshops and other similar buildings: Depreciation rate is 7% of residual (i.e. still undepreciated) value
No depreciation is applicable to the value of the land where the building is located.
The Tax Administration does not deduct your depreciation expenses automatically. Instead, you need to fill in the depreciation information when you submit your tax return.
If you have a rental contract that terminated part way through the year, it means that the building was in your personal use for a certain period that year, and consequently the building was rented out only for a partial period, so your calculation concerning deductible depreciation should only include the period when the rental contract was in effect. For the year when you sell the building, no depreciation can be claimed.
What do I need to do to claim depreciation?
The base for calculating depreciation for the first year is the acquisition cost. For years after that, the base for calculating depreciation will be acquisition cost’s remaining value.
Example: In 2022, Kari purchased a commercial building for €100,000. The entire building is rented out to a business tenant. In the 2022 books, a depreciation of 7% can be claimed, in other words – €7,000. This way, Kari is entitled to deduct €7,000 from the rental income he got during 2022.
The start-of-the-year value on January 1, 2023 is €100,000 – €7,000 = €93,000. This residual amount is Kari’s base for the 2023 depreciation calculation. He is again entitled to claim depreciation against the rental income he gets during 2023. For tax year 2023, the calculation is 7% × €93,000 resulting in €6,510.
Consequently, the value that will remain on 31 December 2023 is €93,000 – €6,510 = €86,490.
If you sell your building later, the claimed amounts have an impact on your taxable capital gains
If you decide to sell the rental building at a later date and make a profit, the depreciation claimed in the tax years up to the sale will impact the way your capital gains are calculated. At that time, the capital-gains subtraction will no longer concern the building’s original acquisition cost. Instead, the subtraction is the remaining value after all the claimed depreciation (the residual acquisition cost).
A further scenario: In 2024, Kari sold the building for €100,000 to his business tenant. It is noted that the building’s residual acquisition cost on 31 December 2023 is €93,000 – €6,510 = €86,490. Kari’s taxable gain from the sale is €100,000 – €86,490 = €13,510. He must pay 30% i.e. €4,053 of tax.
It is important to differentiate between normal smaller repairs and modernisation i.e. major improvements. Each of these two categories has a different tax-deductibility. Accordingly, if you renovate your rental property and part of the work consists of small repair jobs, often done every year, while another part consists of an improvement project, you need to divide the paid total cost by reference to the types of renovations made.
Note: no deductions are available for the property owner’s work hours, even though you work on the repairs yourself. However, when you work at the property, you can claim the expenses you paid for the materials, and the travel expenses for your trips there (for tax year 2023, the base for travel expense deductions is 30 cents per kilometre).
Link to the Tax Administration’s wizard: Tax-deductible repairs in a rental property
Deductions for expenses caused by annual repair work
When annual repair work is done on a building, house or apartment, it is for keeping it in its good operating condition.
Repairs usually done almost every year include
- Painting and decorating
- Replacement of a stove, refrigerator or other appliances
- Replacement of fixtures such as kitchen cabinets and bathroom fittings
- Replacement of a door or window
Annual repairs can be claimed against the rental income of the year during which the repair expenses were paid.
Deductions for improvements
Extensions, alterations, betterments, modernisations, etc. are considered improvements.
The following are examples of improvements and modernisations:
- Converting an unheated storage space into a sauna
- Glazing balconies
- Improving foundations and load-bearing structures
- Improving heating and ventilation
- Installing and improving plumbing and drains
- Installing and improving electrical systems
You have two alternative options to claim deductions:
- Depreciation year to year
- Deferred deduction at the time when you sell the property
If you choose to deduct major repair expenses through depreciation, you must add them to the building’s acquisition cost, filling in the Itemisation of depreciation section, under Additions. Depending on building type, the maximum depreciation to be claimed is either 4% or 7% of acquisition cost.
Example. Katri owns a house where she had a tenant for the entire year 2023. After depreciation claimed for the previous year, the remaining value at the start of 2023 stood at €100,000. In 2023, Katri undertook major repairs on the house’s plumbing. Total expenses were €10,000.
When completing the depreciation calculations, Katri can enter €100,000 in Undepreciated acquisition cost at the start of the tax year, and correspondingly, €10,000 in Additions during the tax year.
For tax year 2023, Katri is entitled to claim 4 percent of depreciation, i.e. 4% × €110,000 resulting in €4,400. She claims this amount against the rental income received in 2023.
Accordingly, the remaining value at the start of the next year will be €106,600 (€110,000 minus €4,400). Katri also enters this value in the itemisation of her 2023 depreciation, in Undepreciated acquisition cost at the end of the tax year.
If you choose to deduct major repairs only at the time when you sell your property to an outside buyer, you are entitled to subtract the repair expenses from the selling price when you calculate your taxable capital gains. This way, the money spent on major repairs makes capital-gains taxes lower. If after the repairs, you have already claimed some depreciation, you can only subtract the undepreciated part of the acquisition cost, and the undepreciated part of the expenses caused by the major repair job.
Example. Tero has owned a garage building but he is selling it to a buyer for €80,000. The year before last, Tero undertook a major repair project – installation of an air conditioning system. He paid €6,000 in repair expenses. Because Tero claimed no annual depreciation based on the €6,000 spent, he is entitled to full subtraction when calculating the capital gains when the building is sold.
Taxable capital gains are calculated as follows:
Selling price €80,000
Acquisition cost - €65,000
Major repairs - €6,000
Resulting gains €9,000 for which Tero needs to pay 30% capital-gains tax, i.e. €2,700.
It is not uncommon for property owners to buy appliances and pieces of furniture for their rental apartment or house. Typical purchases include a cabinet for storing clothes and a drum dryer.
- If you buy these items for less than €1,200 or having a useful life shorter than 3 years, you are entitled to treat the purchase price as part of your yearly expenses, i.e. you can claim the entire price.
- However, when you buy them for more than €1,200 or if the useful life of the appliances, furniture, etc. is longer than 3 years, you need to perform a depreciation calculation, and then claim the depreciable expense during the upcoming years. Maximum depreciation for these items is 25% per year.
The tax rules require that the property owner draw up a list of appliances and furniture containing descriptions, quantities of items, purchase prices (or year-end residual values, if you claim depreciation).
Example. Kirsi spent €2,000 on a dryer. She placed it in the rental apartment she owns. The tax-deductible depreciation expense for year 1 when her tenant starts using the dryer is 25% × €2,000 = €500. This way, the residual value that Kirsi can carry forward to the next year is €1,500. She needs to calculate depreciation accordingly.
For year 2, Kirsi is entitled to claim max. €375 (25% × €1,500) based on depreciation, and this results in a year-end residual value of €1,125.
For year 3, when only a value below €1,200 will remain, she can claim €1,125 in full.
A ‘furnished apartment’ is an apartment where furniture and appliances needed for normal everyday life are readily available – a dining-room table, a bed, a couch, and more.
If the dwelling unit you are renting out is a furnished apartment, the tax rules allow you to choose between a standard deduction based on a formula – or a deduction based on actual cost. The choice you make should remain unchanged over the course of the upcoming years.
If you claim the formula-based deduction, you are entitled to deduct the following amounts monthly:
- Standard €40 per month for one furnished studio or for one rented-out room
- Standard €60 per month if your furnished apartment has more than one rooms of living space
The standard is not affected by how many people live there as your tenants. The monthly amount is intended to cover all the expense items in your dwelling unit. On top of the standard deduction, you are entitled to claim maintenance charges and other expenses as usual.
If you claim actual expenses, you need to perform calculations for either the appliances’ and furniture’s purchase prices or for deductions in the form of depreciation year to year. You must be able to specify your claim and present receipts if so requested. You can find more information on depreciation rules under the sub-heading Purchases of home appliances, movable property.
Claim the actual expenses under Rental income – Other expenses.
If you took a loan to buy the rental apartment or house, the loan is closely related to your activities to gain or produce income. As a result, the interest and the bank’s service fees are tax-deductible.
The Tax Administration receives information directly from banks on their lending and on interest payments. Your loan information is shown on your pre-completed tax return, under “Interest on debts” – Velan korot. Please check your pre-completed return to make sure that the purpose of your loan is stated correctly. It should read “for production of income”. If nothing is pre-filled, add the relevant information under “Interest on debts” – Velan korot. Accordingly, please note that no deductions based on interest and bank fees must be entered under “Rental income”.
Note: if you charge below-market rent, no deductions based on interest and bank fees are available.
Read more
If your rental expenses exceed rental income, the loss can be deducted against your other income from investments and capital. The Tax Administration will grant this deduction automatically.
However, it may be that you have no such income. In that case, there will be a “deficit in the capital-income category”. The Tax Administration compensates for the deficit by crediting 30% from your income tax on wages and other earnings.
In other words, rental losses cannot be directly deducted from rental income – instead, the deduction is granted to you in the form of a tax credit.
Example: Keijo’s rental income for 2023 was €5,000. His maintenance charges for 2023 equalled €2,400 and because the housing company commissioned a major plumbing repair, the housing-company’s loan charge was €8,600. Keijo’s loss is -€6,000 (€5,000 – €2,400 – €8,600).
Besides his rental income, Keijo had no other income in 2023 from investments or from capital. For this reason, he gets a tax credit of 30% for his earned income. The credit for the deficit in capital income is calculated as €6,000 × 30% = €1,800. However, the maximum credit is €1,400. This way, only €1,400 is subtracted from Keijo’s taxes for 2023.