Rental Income Tax In Italy: Cedolare Secca

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Introduction

The Cedolare Secca, or “Dry Rent”, is a tax regime that applies to rental income in Italy. 

It is characterized by the application of a substitute tax to the personal taxation IRPEF (Imposta sul Reddito delle Persone Fisiche), and it provides an exemption from the payment of registration and stamp duties, as well as regional and municipal IRPEF surcharges. 

If someone doesn’t choose to use the special taxation will apply the IRPEF, which is the Italian tax on the income of individuals who are either resident in Italy and/or earn income in Italy, and IRPEF is much more expensive.

To give an idea of IRPEF:

The IRPEF is a progressive tax. The tax rates for 2024 are as follows:

  • Up to €28,000: 23%
  • €28,001 to €50,000: 35%
  • Over €50,000: 43%

Deductions are usually equal to 19% of the charges borne, reducing the gross taxation applicable. Additionally, regional and municipal IRPEF surcharges may apply. The tax is calculated by applying the relevant rate to the total income, net of deductible expenses. The IRPEF is a tax on an individual’s total income, regardless of the source.

The Cedolare Secca is the alternative tax regime for rental income in Italy, where a fixed tax rate (21%) is applied, providing a simpler and more predictable tax arrangement compared to the variable IRPEF taxation.

The choice for the special regime implies the waiver of the right to request the updating of the lease fee, even if provided for in the contract, including the variation ascertained by ISTAT of the national consumer price index.

How it Works

As you probably already understood, the Cedolare Secca is an alternative tax regime that landlords can choose to apply to their rental income. It offers a simplified and advantageous tax treatment, as it replaces the traditional income tax on property rentals with a flat tax rate. 

There are two fixed rates for the Cedolare Secca:

  • 21% for free market rents, 
  • and 19% for agreed rents in large, densely populated cities. 

If chosen by the taxpayer, it replaces the IRPEF, additional regional and municipal taxes, registration tax, and stamp duty on lease contracts.

To opt for the “cedolare secca” instead of IRPEF for rental income in Italy is quite simple, you just follow these steps:

  1. Eligibility: Ensure the rental contract meets the conditions for that regime;
  2. Choose the Regime: When registering the rental contract, select that option.

New Percentage from the Second Property

Starting in 2024, the tax rate for the “cedolare secca” on short-term rentals will increase to 26%, but only from the second property leased. Therefore, those who have a single apartment to rent can continue to do so without further tax increases, as the rate remains the same.

But who can benefit from this special taxation?

requirements for cedolare secca

Landlords with rental income need to meet certain requirements.

The criteria for opting are as follows:

  1. The owner of the real estate must be a private individual, not a company.
  2. The tenant must be a private individual, not a company, and must use the property only for residential purposes.
  3. The property subject to the contract must be residential and registered as such.

However, it is important to carefully evaluate whether the special regime is the most convenient option based on individual circumstances and income levels.

Legislation and Practice

The legislation governing the Cedolare Secca is contained in Legislative Decree No. 23 of March 14, 2011. Some circulars and decrees guide the application of this regime, including specific provisions and interpretations. Landlords need to stay informed about any updates or changes to the legislation and practice related to this taxation to ensure compliance with fiscal regulations.

What are the benefits of the cedolare secca for landlords and tenants?

The Cedolare Secca is an optional tax regime in Italy that offers benefits for both landlords and tenants. Here are the key advantages for both parties:

Benefits for Landlords:

  1. Fiscal Savings: Landlords who opt for this regime can benefit from important fiscal savings. They are subject to a fixed tax rate on rental income, which replaces the traditional income tax on property rentals. In this case, starting from 2024, the tax rate is set at 21% for incomes derived from short-term lease contracts related to a property chosen by the taxpayer in their income tax return.
  2. Exemption from Additional Taxes: Under this special taxation, landlords are exempt from paying additional regional and municipal income taxes on their rental income.
  3. Simplified Tax Treatment: The Cedolare Secca provides a simplified tax treatment, offering a more predictable and streamlined approach to taxation for landlords.

Benefits for Tenants:

  1. Stable Rental Costs: The Cedolare Secca taxation provides stability in rental costs for tenants. Landlords who choose this tax regime are not allowed to increase the rent during the contract, even if provided for in the agreement or due to variations ascertained by the ISTAT of the national consumer price index.
  2. Exemption from Stamp Duty: Tenants benefit from the exemption of stamp duty on lease contracts under this regime, reducing the initial costs associated with renting a property.
  3. Reduced Administrative Burden: The simplified tax treatment for landlords also translates into a reduced administrative burden for tenants, as they are not subject to additional taxes or duties on their rental payments.

The Cedolare Secca offers a range of benefits for both landlords and tenants in Italy. Landlords can enjoy fiscal savings and simplified tax treatment, while tenants benefit from stable rental costs and reduced administrative burdens.

These advantages make the Cedolare Secca an attractive option for many property owners and renters in Italy.