Tourist vs. residential rental in tax matters

It is clear that if you have ever considered yourself invest in real estate an important dilemma has come to your mind. ?Vacation rental or residential rental? In this article we will see some of the differences between both types of properties in terms of prosecutorial.
It's normal to have doubts about whether invest in residential or vacation rentals, in fact it happens to us ourselves with our tokenized properties, for those who don't know, the idea of Reental And the real estate tokenization my main objective was vacation rentals, but due to current restrictions, we pivoted to residential. So don't feel worried about having that question, we had it ourselves 😉.

When are you going to invest in real estate there are several aspects that you should consider, even beyond the profitability, that often the investor can be blinded by this last piece of information and ignore many other things.

The part prosecutorial It is undoubtedly one of the aspects to consider when investing in real estate, let's look at the main differences between both types of properties.

PERSONAL INCOME TAX

First of all, when the owner is natural person of any property for rent, this must include the income received from the operation of the property in the income tax return as real estate capital returns. The quantification of performance is calculated by subtracting deductible expenses from earned income.

In the case of tourist rental legislation does make a clear difference. Legislation separates tourist rentals that only make a home available to their client, from which offers services specific to the hotel industry (laundry or catering for example). In the case of properties that offer the latter type of services, revenues are calculated as income from economic activities. In addition to properties that offer this type of service, this consideration will also be given to properties whose management requires at least one person hired full time.

Regarding the dilemma between vacation rentals and residential rentals, personal income tax makes a clear distinction between these two methods of exploitation. The main difference is the possibility of be deducted up to 60% of the resulting net return, a very attractive tax advantage, but it is only available to properties that aim to meet a need for permanent housing. This directly excludes properties operated as vacation rentals, whether or not they offer hotel industry services.

VAT

Whether or not it is mandatory to pay taxes on Value Added Tax, or VAT, is another difference between these two types of rental. In the case of the rent of the house, as long as that is its use, it is an operation that is exempt from this tax. On this aspect, the legislation once again differentiates between those properties that offer services specific to the hotel industry, and those that do not, since their owners would have the status of businessmen, so they would be subject to VAT.

In the event that lodging services were not provided, the rental activity would be subject to the Tax on Property Transfers and Documented Legal Acts (in the form of onerous property transfers).

Taxes on Economic Activities

This tax comes into play only for tourist rentals. In this case, the owner must register under heading 685 “Non-hotel tourist accommodation”, if he offers lodging services or under heading 861.1 “Rental of housing”, if he does not offer them. However, taxable persons who are resident individuals, taxpayers of Corporation Tax and entities without legal personality whose net amount of turnover is less than 1,000,000 euros are exempt from this tax.

In the event that the owner of the property in question transfers the property to another person or company to be rented to third parties as an establishment of the non-hotel type, the taxation of this tax will be different. In this case, you must register under heading 861.2 of section 1 'Rental of industrial premises and other NCOP rentals'.

Conclusion

As you can see, the tax aspect is one of the issues to consider when investing in the real estate sector, whether investing in tokenized properties From the Reental real estate tokenization, or by your own hand.

As I mentioned at the beginning of the article, we ourselves consider what type of exploitation to base our real estate tokenization, but today we can proudly say that our investors will be able to enjoy both types of investment.

Today, November 22, 2022, we present our first tokenized vacation property located at Tulum, Mexico. Not only is this Reental vacation's first tokenized property, but it's also the first outside of Spain, isn't it great?

If you want to invest in our tokenized property Tulum-1 Don't arrive later than 17:00 as the tokens fly! We are waiting for you at Tulum Reentel 😁.

In order not to miss any of the opportunities we present, we recommend that you join our group of Discord or Telegram To get to know others Reentels and the whole team. Of course we invite you to take a look at our articles on the blog to continue informing you.

Welcome to the new way of doing finance, welcome to Reental.