EXPENSES TO BE DEDUCTED WHEN DETERMINING RENTAL INCOME IN TÜRKİYE
In the taxation of rental income, the net amount of the income obtained is determined in two different ways as follows:
• Actual expenses method,
• Lump-sum expenses method (for other than those who lease out rights).
The selection of the actual expenses or the lump-sum method must cover all immovable property, which means that it is not possible to choose the actual expenses method for some part and the lump-sum expenses method for the remaining part.
Taxpayers opting for the lump-sum expenses method cannot return to the actual expenses method unless two years have passed.
Deduction of Expenses in Actual Expenses Method
In case the actual expense method is chosen, the following expenses stated in Article 74 of the Income Tax Law can be deducted from the gross income in order to find the net income.
• Lighting, heating, water and elevator expenses paid by lessor for rented property,
• Management costs which are measured according to the importance of property and related with the administration of the rented property,
• Insurance expenses relating to the rented property and rights,
• Interest of debts relating to the rented property and rights,
• 5% of acquisition value of one rented house for 5 years beginning from the date of acquisition (This deduction applies only to rental income of the rented house; non- deductible part is not evaluated as expenditure surplus. This deduction is not valid for houses acquired before 2018),
• Taxes, duties and fees paid for the rented property and rights and rates paid to municipalities for expenses by lessor,
• Depreciation setting aside for rented property and rights, and heat insulation and energy saving expenditures which are made by the lessor and that increase the economic value of the real estate. (These expenditures can be considered as cost if it exceeds 2.000 TL for the year 2022.)
• Repair and maintenance expenses incurred by lessor for the rented property,
• Rents and other actual expenses paid by sub-lessors,
• Rent of the house accommodated by the lessors who rent their own property, (non-deductible part is not evaluated as expenditure surplus),
It is not allowed for taxpayers not residing in Türkiye, (including Turkish nationals who reside abroad for a continuous period of more than six months with a residence or work permit) to deduct the amount of rents they pay in a foreign country from their rental income obtained in Türkiye.
• Cost of loss, detriments and compensations paid for rented property and rights based on a contract, law or court decree. Non-residents who have opted for the actual expenditure method should keep the documents showing the expenses incurred for a period of 5 years and submit to the tax office when required.
Calculation of Deductible Expenses in Case of Exception in Actual Expenses Method
In case, a taxpayer chooses the actual expenses method and benefits from the exception applied to rental income from house, the part of actual expenses corresponding to the exception shall not be deducted from gross revenues.
The part of deductible expenses corresponding to the taxable revenue will be calculated using the following formula:
(*) Taxable Revenue = Total Revenue – Amount of Exception for Rental Income from House
Example: Taxpayer (D) rented his/her house in 2022 and obtained 120.000 TL of rental income. Taxpayer, who has no any other income, incurred 30.000 TL of expenditure for his/her property and chooses the actual expenses method.
The amount that taxpayer can deduct as actual expenses will be the amount that corresponds to the taxable revenue of the total expense for 30.000 TL.
Taxable revenue = 20.000 – 9.500 = 110.500 TL
Deductible expense = (30.000 X 110.500) / 120.000 = 27.625 TL
In case, the amount of actual expense to be deducted from the rental income is 27.625 TL.
Deduction of Expenses in Lump-sum Expenses Method
Taxpayers opting for the lump-sum expenses method can deduct the lump-sum expense at the rate of 15% from their revenue against actual expenses. The lump sum expense, for taxpayers who obtain a rental income and who will be able to benefit from the residence exemption, will be calculated over the remaining amount after deducting the exception amount.
It is not possible to opt for lump-sum expenses method in the case of renting rights. Taxpayers who earn income from the rental of rights along with the rental income of the workplace must choose the actual expense method in their income tax returns.
Source: Revenue Administration
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