Senate passes bill to deduct rent from Individual Income Tax

Bill encourages taxpayers to declare rental income and increases punishment on tax non-compliance

The Senate Committee on Economic Affairs has passed Bill No 709/2022 , which proposes legal amendments benefiting both landlords and tenants with a deduction of amounts earned and paid in rent from their income tax. However, penalties for non-compliance will be intensified.

The goal is to reduce the impacts the pandemic had on the real estate industry and tackle the informality of the sector, countering tax evasion in the submission of income tax returns pertaining to rental agreements.

It is worth mentioning that the bill will be voted upon by the Brazilian House of Representatives. If approved, it will then be forwarded to the chief executive to be sanctioned or vetoed.

Taxpayers need to keep an eye on the enactment process, because the bill may be further amended, as it deals with budgetary matters.

Check out the proposed changes below:

Benefits for landlords

Until the 2028 fiscal year, landlords will be granted a partial income tax exemption, corresponding to 75% of the amounts received from the residential lease of their real estate.

The benefit also applies to landlords and holders of other property rights on the leased property.

Benefits for tenants

The total amounts paid by tenants for the rental of residential real estate will be deducted from their income tax base, during the same period granted to landlords.

It should be noted that the above deduction is restricted to amounts paid in rent by taxpayers and their dependents for the property where they live, thus excluding other properties, and only covers payments made during the calendar year pertaining to the corresponding income statement.

Also important is that ancillary expenses, such as urban real estate taxes (“IPTU”) and condominium fees, will not be deducted.

Stiffer penalties

It is expected that these benefits will encourage taxpayers to declare their income, but if they still fail to do so, stricter penalties will be in place for non-compliance, which shall be doubled.

In case of omissions or inaccuracies in the declaration of income resulting from the rental of residential properties, the bill provides for an increase, from 75% to 150%, in the fine levied on the totality or difference between the taxes paid and those due.

Of note is that while the proposed benefits will be valid for 5 years, the fine increase will remain enforceable indefinitely.

Specialized support

DPC has a department dedicated to assisting individuals, with experts ready to provide support to taxpayers with the preparation and submission of their Income Tax returns, ensuring compliance with the Federal Revenue Service. You can rely on this support: dpc@dpc.com.br.