Rental losses from flats and houses
If rental costs end up being higher than rental income, the loss can be deducted from other capital gains. If there are no other capital gains, a deficit is recorded. The Tax Administration compensates for the deficit by deducting 30% from the taxpayer's income tax.
In other words, rental losses cannot be directly deducted from rental income accrued during subsequent years, and instead the deduction is made by means of a deficit credit.
Example: Pekka decides to pay a capital charge of EUR 8,600 for replumbing in one lump sum in 2023. His maintenance charges of EUR 2,400 and the capital charge of EUR 8,600 are deducted from his rental income (EUR 5,000). Pekka has no mortgage interest payments relating to the let flat or other costs affecting his capital gains during the tax year.
He therefore makes a rental loss of EUR 6,000 (EUR 5,000 – EUR 2,400 – EUR 8,600). A deficit credit of 30% is deducted from his income tax: EUR 6,000 x 30% = EUR 1,800. However, the maximum deficit credit is EUR 1,400. The maximum deficit credit, EUR 1,400, is deducted from Pekka's taxes for 2023.
Capital losses
If deductions from capital gains exceed the amount of capital gains, there is a deficit. If the amount of income tax payable is not high enough to deduct the deficit (i.e. to apply a deficit credit), a capital loss is recorded.
Capital losses can also materialise if a deficit cannot be fully deducted from tax levied on income due to the deficit credit ceiling. In such cases, the Tax Administration calculates the amount of capital losses by deducting the deficit credit from the deficit after first multiplying it by a factor of (100:30).
The Tax Administration then deducts the capital loss from capital gains accrued over the following 10 tax years as and when capital gains accumulate.
Example: Pekka's deficit credit amounted to EUR 1,800, but only the maximum deficit credit, EUR 1,400, could be deducted from his income tax. His capital losses amount to EUR 1,333 ((EUR 6,000 – ((100:30) x EUR 1,400)). The loss will be deducted from Pekka's capital gains over the next 10 tax years as and when capital gains accumulate.
See a list of rental flat or house costs that can be deducted from rental income.