Taxation of Rental Incomes in 2024.

Rental Incomes in 2024 – What Happens to the Lump Sum Deduction Legislation regarding the taxation of rental incomes has changed significantly in recent years. Until the year 2022 inclusive, the Fiscal Code allowed for the application of a lump sum deduction of 40% on gross income for individuals earning rental incomes. 

In other words, 40% was deducted from the gross income, and the 10% income tax was applied only to the remaining 60%. Thus, in practice, property owners paid an effective tax rate of 6% on gross income (i.e., income obtained from tenants).  As of January 1, 2023, this lump sum deduction was eliminated, leading to an increase in taxes. Without deductions from gross income, the 10% rate is applied to the entire income. Therefore, the practical tax rate increased from 6% to 10%.

Taxation of Rental Incomes in 2024 – 20% Lump Sum Deduction

Starting January 1, 2024, the law has been changed again. The lump sum deduction for expenses has been reintroduced, but this time it is only 20%. Consequently, 20% is deducted from the gross income, and the 10% income tax is applied only to 80% of the gross income. As a result, the property owner will pay an 8% tax on the income obtained to the tax authorities.

2024 Rental Income Tax This change is found in paragraph 3 of Article 84 of the Fiscal Code, which concerns the determination of the annual net income from the lease of assets.

The annual net income from the lease of assets is calculated by deducting expenses determined by applying a 20% rate to the gross income.

We better understand how rental incomes in 2024 are taxed through an example. Let's assume that an owner rents out a studio apartment for 400 euros per month and has a tenant for the entire year, i.e., 12 months.

Taxation of Rental Incomes in 2024 – Example The gross income obtained by the owner is 4,800 euros, equivalent to approximately 24,000 lei. From this income, the lump sum deduction of 20% is deducted. Thus, 4,800 lei is deducted from 24,000 lei.

This results in an income of 19,200 lei, to which the 10% income tax will be applied. Therefore, in this example, the owner will pay 1,920 lei to the tax authorities. After paying the tax, from the total sum of 24,000 lei, which was the gross income, the owner will remain with 22,080 lei (about 4,400 euros).

Taxation of Rental Incomes in 2024 and CASS Payment However, in addition to the income tax, which is practically 8% of the gross income, property owners who earn rental incomes must also pay the contribution for health insurance (CASS) if they earn incomes above a certain threshold.

When analyzing the reaching of this threshold, not only rental incomes are taken into account but also other incomes, such as those from investments, intellectual property rights, or agriculture.

According to the law, those who earn incomes equal to at least 6 times the gross minimum wage per country, in force at the time of submitting the single declaration, must pay CASS, i.e., 19,800 lei (currently, the gross minimum wage per country is 3,300 lei, so 3,300 lei x 6).

Rental Incomes – Gross Income, Net Income, Lump Sum Deduction In the case of rental incomes, the net income is taken into account (in this case, the net income refers to the difference between the gross income and the 20% lump sum deduction). In the above example, the net income is 19,200 lei. Therefore, in this case, the threshold of 19,800 lei has not been exceeded, so the owner does not have to pay CASS.

If the incomes exceed the threshold of 6 times the gross minimum wage per country, the person must pay CASS at the level of 6, 12, or 24 times the gross minimum wage in force at the time of submitting the single declaration (depending on the level of income).

Taxation of Rental Incomes in 2024 – Basis for Calculating CASS

The annual calculation basis for CASS is set at:

a) the level of 6 times the gross minimum wage per country, in the case of incomes ranging between 6 times and 12 times the gross minimum wage per country;

b) the level of 12 times the gross minimum wage per country, in the case of incomes ranging between 12 times and 24 times the gross minimum wage per country;

c) the level of 24 times the gross minimum wage per country, in the case of incomes at least equal to 24 times the gross minimum wage per country.

The CASS rate is 10%, and as of January 1, 2024, the gross minimum wage is 3,300 lei per month. Therefore, for the gross minimum wage per economy, the health contribution is 330 lei per month.

2024 Rental Incomes CASS Payment – Examples We better understand how rental incomes in 2024 are taxed and how much is paid for CASS through a few examples.

Let's assume that the owner earns higher incomes from rentals because he rents out an apartment for 500 euros per month and earns 30,000 lei per year (500 euros x 12 x 5). From the gross income, the 20% lump sum deduction is deducted, resulting in a taxable net income of 24,000 lei.

The owner has exceeded the threshold of 6 times the gross minimum wage per country but has not exceeded 12 times the gross minimum wage per country. Therefore, he will pay CASS at the level of 6 times the gross minimum wage, i.e., 1,980 lei (330 lei x 6).

If he earns income equal to 15 times the gross minimum wage per country, i.e., 49,500 lei (3,300 x 15), he will have to pay CASS at the level of 12 times the gross minimum wage per country, i.e., 3,960 lei (330 lei x 12).

If he earns income equal to 30 times the gross minimum wage, i.e., 99,000 lei (3,300 x 30), then he will have to pay CASS at the level of 24 times the gross minimum wage per country, i.e., 7,920 lei (330 lei x 24)."