Calculating taxable income from the letting of housing

Housing subject to tax-exempt assessment

If the housing is to be subject to tax-exempt assessment, rental income will not be taxable.

Housing subject to accounts-based assessment

If the housing/holiday home is to be subject to accounts-based tax assessment, the profit or loss will be calculated by adding together the deductible running expenses and deducting the total taxable rental income. You will not be taxed for your own use.

When the property is subject to accounts-based assessment as a result of letting, the rental form (RF-1189) must be completed and submitted together with the tax return.

Accounts-based assessment is carried out by deducting eligible running expenses (e.g. insurance, ground rent, property tax, local government taxes and maintenance) from the total rental income. Any profit will be taxed as capital income at the rate of 25 percent (2016). The tax rate for the 2017 income year is 24 percent.

If maintenance costs cannot be linked to a specific part of the property, the deduction must be based on a proportional allocation of expenses based on the rental value of the part that you occupy and the let part. This will typically be the case for exterior maintenance, e.g. painting the whole house. The same applies to running expenses relating to the whole property, such as local government taxes, property tax, survey costs for determining capital value, valuer’s fees, etc. in connection with requests for a reduction in tax value, insurance, etc. If the dwelling is let for part of the year and the owner uses the whole of the property for the rest of the year, a deduction will be given for running expenses in relation to the duration of the letting period (see however the information concerning exceptions upon transition from tax-exempt assessment to accounts-based assessment).

Example 1
You let the entire dwelling for eight months and use the entire property as your own home for four months. Running expenses amount to NOK 100,000. The deduction for running expenses during the year is reduced to 8/12ths, as you have used the property as your own home for four months.

Example 2
You live in the largest apartment in a multi-unit house. The multi-unit house consists of a 120-square metre family apartment, an 80-square metre family apartment and a 50-square metre independent bedsit.

The annual rental value of the part that you occupy is NOK 90,000. The benefit you derive from living in this part of the dwelling is tax-free. The annual rental income for the family apartment is NOK 70,000 and for the bedsit apartment NOK 40,000. Total running expenses during the year amount to NOK 100,000. Of the total running expenses, NOK 70,000 relate to maintenance which is only linked to the two apartments that are let. The owner will be given a deduction for these expenses in full, as they are linked to the part of the dwelling that generates taxable rental income. The remaining running expenses of NOK 30,000 are not linked to any specific part of the property. As the rental value of the apartments that are let amounts to 55 percent of the total rental value of the dwelling (rental value of NOK 110,000 of the total rental value of the dwelling of NOK 200,000), you will receive an allowance for NOK 16,500 (55 percent of NOK 30,000).

Rental income

NOK 110,000

- Maintenance expenses

NOK 70,000

- Proportional share of running expenses

NOK 16,500

Net income

NOK 23,500

You must pay 25 percent tax (2016) or 24 percent tax (2017) on the net income of NOK 23,500, i.e. NOK 5,875.

What is considered to be maintenance?
Expenses incurred in connection with work that is carried out to restore the property to its former condition.

Work to improve or alter the condition of the property is considered improvement. No deduction will be given for expenses that are attributable to improvements.

Transition from tax-exempt assessment to accounts-based assessment
Special rules apply in the event of such a change in assessment method which limits the deduction for maintenance expenses. Other running expenses, such as local government taxes, are fully deductible from the year in which accounts-based assessment begins to apply. If the same owner has been subject to tax-exempt assessment for the property in the previous income year and letting of the property lasts for less than half the income year (up to 182 days), maintenance expenses in the first year of accounts-based assessment will not be deductible. All letting during the income year, including during periods when the owner occupies at least half of the property him/herself, will be considered to be letting regardless of its extent. If the property is let for a longer period, maintenance expenses in excess of NOK 10,000 that relate to the let part of the property must be reduced by 10 percent for each year in which the owner has been tax-exempt assessed during the last five income years.

When is letting considered commercial activity?
The question of whether or not the letting of a dwelling/holiday home must be considered commercial activity must be assessed on the basis of a specific overall assessment. The letting of five or more housing units will generally be considered commercial activity. Rental circumstances concerning buildings which are subject to tax-exempt assessment under Section 7-2 of the Tax Act must be excluded from the assessment as to whether the other letting circumstances should be considered commercial activity.

Letting with a lesser scope than referred to above may also constitute commercial activity, such as when the taxpayer has a high level of activity, e.g. in connection with intensive short-term letting, inspection and cleaning of the premises or similar. The level of activity will often be high, particularly in the case of short-term letting, with the result that commercial activity may be deemed to be taking place even if only one housing unit is being let.

In exceptional cases, income from letting with a greater scope than referred to above may be considered to constitute return on capital when the level of activity is particularly low, e.g. because a long-term contract has been established and the lessee is responsible for internal and external maintenance and all expenses.

If the rental income constitutes commercial activity, you must submit an income statement. If the letting is part of a business, rental income for a natural person must also be included in the basis for the personal income. Employer’s National Insurance contributions and steptax must then be paid, in addition to tax on general income.

The tax return

If the rental income is taxable, the dwelling will, as mentioned previously, be subject to accounts-based assessment for the whole year, and you will also be entitled to a deduction for your running expenses that are attributable to the let part of the property. You must fill in RF-1189E Letting etc. of real property  together with your tax return.

Enter the amounts in the tax return as follows:

  • Item 2.8.2 for a profit; item 3.3.12 for a loss. 
  • If you complete the tax return electronically, the profit/loss will end up in the correct item of the tax return automatically after RF-1189 has been completed electronically.
  • Item 2.8.5 is used for profits made on housing abroad.