Temporary rental vs. habitual: Which one interests you more?

Both rental modalities have their pros and cons. These are the tax details about rent that owners often ignore, as reported by experts from the real estate platform Housfy.

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The rental of a habitual residence – that of a lifetime – is subject to the Urban Leasing Law (LAU) and aims to provide shelter to families permanently and indefinitely. It is possible to update the rents each year, depending on the appropriate price index or specific regulations.

Please note that for 2023 rent increases are capped at 2%. In 2024, this ceiling will be 3% and, therefore, the CPI will not be used to update income.

Regarding temporary rental, the Law frames it under the label “rental for use other than housing”. It gives more flexibility to both parties to establish their rules, but the duration is beyond reproach:

• 32 days minimum.
• A maximum of 11 months (beyond that, you would have to sign a regular residence rental contract).

It is possible to set rents more freely in each temporary rental contract —and always in accordance with market prices for this modality—, but it is important not to forget its particularities:

• High tenant turnover comes with inherent risk.
• Its management will require greater involvement from the owner.
• it’s possible maximize rental profitabilitybut only if the time between contracts is optimized.

The temporary rental is not the same as the vacation rental, which allows stays of less than 31 days or even for nights. For the vacation, the landlord will need a license and will be governed by the tourist laws of each autonomous community.

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Rental income, in the income statement

The nature of both is exposed when the lessor renders accounts with the Treasury. Let’s compare the two practices in the income statement.

Declare the rental of habitual residence

An owner who rents his property as a habitual residence must declare the annual net yield of his rent.

This means that you will need to add up all the gross income for the year and deduct from it all the expenses derived from the rent. Although they may vary each year, the deductible expenses correspond to the following concepts:

Deductible annual expenses

• Waste collection fee
• Property Tax (IBI)
• Rent non-payment insurance
• Home insurance
• Community expenses and spills
• mortgage interest
• Amortization of the property (which is 3% of the greater between the cadastral value of the construction or the purchase value that corresponds to the construction)

With the new housing lawwhich passes on the real estate commission to the landlord, it will also be possible to deduct this expense from the total rental income.

As the apartment serves as the habitual residence of the tenants, Treasury applies a bonus of 60% on the net income before submitting it to tax. Thus, the amount subject to IRPF (and that would be added to the tax base, together with the salary) is only 40% of the net rental income.

If the tenant does not use the property as a habitual residence, the owner does not access tax credits. To confirm it, he must be registered in the house

david fatHousfy real estate specialist

These bonuses may be higher (and reach 90%) with the application of the Housing Law of 2023, if the conditions contemplated in this new regulation are met.

These are, summarized, the points of the declaration of the income of an apartment for rent of habitual residence:

Rent of habitual residence
in the income statement

💰

gross annual income

💡

deductible expenses derived from rent

✔️

60% reduction by habitual residence

👉 Amount subject to income tax: 40% of net income
👉 Possibility of reaching bonuses up to 90% with the new Housing Law.

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Declare temporary rental

The owner who chooses to rent his apartment seasonally, and at higher prices, must declare the income from all the contracts that occur during the same fiscal year.

The annual gross income of the temporary rental can calmly dazzle those of the regular rental. For example:

In winter, formalize some longer contracts for workers temporarily assigned to the city or international students. The price is slightly higher than the usual rental.

In summer, formalize several 32-day contracts to various groups of tourists or foreign families who come to spend the holidays. The price doubles or triples the usual rental income.

And all rental-related expenses can also be deducted, just like before. It will be necessary to take into account, of course, the expenses of this modality. Let’s say:

• The owner could assume the electricity, gas and water supplies (which would be included in the rental price), and could hire a cleaning service to condition the apartment between tenants.
• Perhaps you will have to restore part of the household trousseau after the summer season, which would mean a few hundred extra euros.

The temporary rental, on the other hand, does not access any tax reduction, since the property is not the residence of the tenants. Therefore, the owner is required to declare 100% of the annual net rental income.

The higher the amount to be taxed, the more easily the calculation of the IRPF, which is progressive, will go through several sections. The amount to pay in IRPF can triple that of the usual rent.

The Tax Agency also determines an imputation of income for the time that the apartment has been empty. This amount to be paid will depend on the cadastral value and the number of days that the property has been available to the taxpayer.

Let’s see broken down, by way of summary, the aspects of the temporary rental income statement:

Seasonal rental
in the income statement

💰

Gross income of all temporary contracts for the fiscal year

💡

Deductible expenses derived from the rental

🏡 including supplies, cleaning and renovation of furniture

❌

Does not access bonuses for rental of habitual residence.

👉

Amount subject to income tax: 100% of net income

💸

To return:

🧾 personal income tax
⛑️ imputed real estate income for the time that the home has been available to the taxpayer

It should be left to the reader’s judgment to choose which is more profitable, weighing the challenges of temporary rental and the facilities of regular rental. It is very common that, after all, there is not much difference between the annual net earnings of one modality and the other and, if there is, it would be necessary to analyze how much they compensate according to the situation.

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