How to Legally Rent Out an Apartment and Pay Less Tax?

According to the law, all income from renting out an apartment is subject to personal income tax (NDFL). If you rent out an apartment as a physical person, you must register as an individual entrepreneur (IP) and pay 13% of your income. Under the simplified tax system, an IP must pay 6%. This was the case before.

As of January 1, 2019, a landlord can obtain the status of a self-employed person, earn legally, and pay only 4% tax on professional income if renting property to individuals, or 6% if renting to legal entities.

We explore together with the co-founder of the project supporting landlords, 'Proper Rental', who can obtain the status of self-employed and what it offers to landlords.

Dmitry Lebedev - Expert, Co-founder of the project supporting landlords 'Proper Rental'

Professional income tax — currently an experiment. It will be in effect from January 1, 2019, to December 31, 2028, in four regions: Moscow, Tatarstan, Moscow Region, and Kaluga Region. Who can pay the tax?

The name of the law for self-employed individuals already implies that you must work for yourself, without hiring employees. Your annual income should not exceed 2.4 million rubles. If you were already registered as an IP, this status can be suspended and retained by switching to new conditions. In the self-employed status, you can still have a main job — your employer will pay NDFL for you there.

What are the specifics for landlords?

The mandatory condition is that you must be the owner of the apartment you plan to rent out. You cannot legalize income from renting an apartment that is in your trust management. It is also important that the tenant pays you the income strictly in monetary form. Today's usual agreement like 'buy a washing machine as payment for rent' no longer works. In such cases, you can make changes to the property clause in the contract, but the payment receipt should indicate the full amount.

How to get the status of self-employed?

To pay taxes and interact with the tax authority, the Federal Tax Service (FNS) developed a mobile app called 'My Tax'. You can register as self-employed in this app.

The app offers two registration methods: with a passport or through the taxpayer's personal account. After registration, you need to enter your INN, confirm your phone number, and specify the region of activity.

How to report to the tax authority?

After each payment, you will generate a receipt in the app. It does not matter how exactly your tenants paid you — via bank transfer or cash. You simply enter the income amount in the app, and the information will automatically go to the tax authority.

At the end of each month, the tax authority will send you the tax amount and then, after your consent, it will be deducted from your account. You don't need to submit reports or pay insurance contributions.

Can I pay even less?

A supplementary tax deduction is provided for self-employed individuals — 10,000 rubles (3% instead of 4%, if renting to individuals, or 4% instead of 6% if renting to organizations). This helps reduce tax for a certain period. The tax deduction can be used in parts.

For example, if you rent an apartment for 40,000 rubles, you must pay 1,600 rubles in tax each month. With the deduction (400 rubles), your monthly tax for 25 months will be 1,200 rubles. That is, 3% instead of 4% until the total monthly deductions reach 10,000 rubles. If a rental agreement with one tenant ends, the remaining tax deductions can be used with the next tenant.

Stopped renting out an apartment, how to exit the self-employed status?

To exit the self-employed status, it is enough to simply submit an application. The FNS can also revoke the status of self-employed. For example, if it notices that your annual income exceeds 2.4 million rubles. You will be notified through the 'My Tax' app or your bank.

Cover design by Anna Kovalchenko