Deductions - renting out commercial property

If your rental income is taxable, you can claim deductions for expenses related to the rental activity.

When you own and live in a part of the property, you're only entitled to deductions for the share of expenses that can be attributed to the part of your property that you rent out. Expenses that cannot be attributed to specific parts of the property must be allocated according to the rental value of the part you live in and the rental value of the part you rent out. This applies, for example, to expenses related to external maintenance, insurance, and municipal taxes.

You have a property that is divided into a commercial part and a family apartment. 

  • The commercial part on the first floor is 200 square metres.The annual rental value is NOK 150,000.The commercial part is rented out during the entire calendar year.
  • The family appartment on the second floor is also 200 square metres. The annual rental value is NOK 100,000. You are living in the family apartment yourself while the commercial part is rented out.


The area that is rented out has a higher rental value than the part you live in, which means that the rental income (exceeding NOK 20,000) is taxable in its entirety.

For the year in question, you have expenses of NOK 100,000 that cannot be attributed to a specific part of the property (shared expenses).

The part you rent out constitutes 60 percent (NOK 150,000/NOK 250,000) of the calculated rental value of the property.

This means that you can claim a deduction for NOK 60,000 (100,000 x 60 percent).

Expenses you may get a deduction for

The difference between upgrades and maintenance

You may only claim a deduction for expenses related to maintenance. By that, we mean expenses related to work performed to restore the property to its former condition.

Expenses related to work that improves the property or alters the house are considered expenses related to improvements. You cannot claim deductions for expenses related to improvements.

If the property was previously of a normal standard and is upgraded to a high standard, the expenses related to the difference between normal and high standard will be considered an improvement.

The form for specification of maintenance and improvements (in Norwegian only) may be helpful in order to decide which expenses are related to maintenance and which are related to improvements.

  • Performing repairs to the same standard as before
  • Repainting a house
  • Replacing floors/wall panels, windows, etc. to achieve the same standard as before
  • Sanding parquet flooring
  • Replacing pipework
  • Replacing the water heater with one of equivalent size
  • Replacing a bathtub, mixer taps and ordinary taps to achieve the same standard as before
  • Replacing kitchen fittings with new ones that are by today's standards, considered to achieve the same standard as before.

  • Painting the house for the first time
  • Demolishing and moving a wall to make a larger room
  • Extension of electrical installations/pipework
  • Putting in a fireplace
  • When replacing a wood-burning stove with a pellet-fired stove, the added cost associated with the purchase and installation of the pellet-fired stove will be considered an improvement
  • If a bathroom is moved to a different room in the house, it’s considered an improvement. The replacement of an old bathroom with one of the same standard as before will be considered maintenance

The limitations below do not apply if you buy a residential property/holiday home that is only used for renting out and not by yourself.

The two limitation rules below will apply if you’ve done the following in the last five years:

  • you’ve lived in the residential property and/or have not rented it out at all
  • you’ve rented out such a small part of your own home that the rental income was not taxable
  • you’ve been taxed for renting out your own home as a short-term rental
  • you’ve used the holiday home that you’re now only renting out, yourself
1. Limitation when renting out your property under 6 months in the first year

If you rent out for less than 6 months the first year, and you’ve lived in the residential property yourself, you cannot claim a deduction for any maintenance expenses the first year.

2. Limitation of the deduction in the first five years

If you rent out for more than 6 months the first year, you can claim a deduction for maintenance costs. You can then claim a deduction for the first NOK 10,000, but not for any expenses exceeding NOK 10,000. 

The deduction for maintenance expenses is calculated as follows:

Number of years of tax-exempt assessment during the last five years:

The deduction for maintenance expenses:

5 years

NOK 10,000 + 50% of the amount exceeding NOK 10,000

4 years

NOK 10,000 + 60% of the amount exceeding NOK 10,000

3 years

NOK 10,000 + 70% of the amount exceeding NOK 10,000

2 years

NOK 10,000 + 80% of the amount exceeding NOK 10,000

1 year

NOK 10,000 + 90% of the amount exceeding NOK 10,000

0 years

Full deduction
Example
You own a residential property that you have lived in yourself for more than 5 years and from which you have not previously had taxable rental income.
  • In year 1 you rent out the entire residential property for eight months, and the rental income is therefore taxable.
  • You also rent out the residential property in year 2.
  • The maintenance expenses in year 1 amount to NOK 100,000.
The deduction in year 1 will then be NOK 10,000 + (50 percent x 90,000), amounting to (10,000 + 45,000) NOK 55,000.
If the maintenance expenses are the same in year 2, the deduction will be NOK 10,000 + (60 percent x 90,000), amounting to (10,000 + 54,000) NOK 64,000.

Please contact us if you want to know more about limitations to the entitlement for deducting maintenance expenses.

Assessment of whether the building is depreciable

The main rule is that buildings that are rented out are depreciable when the rental income is subject to tax. Plots of land and residential properties, on the other hand, are non-depreciable. If the building is sectioned, each section must be treated as a separate building/fixed asset.

Mixed use buildings (buildings that combine commercial areas and residential areas) that are not sectioned, can be depreciated if more than half of the building is used for a purpose with entitlement for depreciation. The share of the building that is used for purposes with entitlement for depreciation is determined on the basis of rental value, not floor area. In the total assessment of whether the building is depreciable or not, the rental value of the owner’s own residential share on the property must be included in the calculations.

Example

45 percent of the building (according to the rental value) are rented out to a business, 25 percent are rented out for residential purposes, and the owner lives in 30 percent of the building. The owner’s own residential share must be included in the assessment of whether the building can be depreciated. The non-depreciable shares of the building amount to (25 + 30) 55 percent and this means that the building cannot be depreciated. 

Assessment of the depreciation rate

If the building is depreciable, the use of the depreciation group (balance group) must be assessed in order to determine the correct depreciation rate.

The deciding factor for determining which balance group to use is the type of activities that take place in the building. The relevant balance groups are group h (buildings and installations, hotels, etc.), which as a main rule can be depreciated with up to 4 percent, and group i (commercial buildings), which can be depreciated with up to 2 percent. The rental residential property must be included together with balance group i (commercial share) and can be depreciated if the building is depreciable. For example, if at least 50 percent of the total rental value of the building can be attributed to the group commercial buildings, the entire building (including any rental residential property) must be depreciated in this group (group i). The owner's own residential share cannot be included in this assessment, this share cannot be depreciated either.

Example

30 percent of the building belong to balance group h (buildings and installations, hotels, etc.), 25 percent belong to balance group i (commercial buildings), 10 percent apply to the rental residential property, while 35 percent are the owner’s own residential property. The depreciable parts have the largest share (55 percent), this means that the building is depreciable.

The owner’s own residential property cannot be included in the assessment of the correct balance group for the building. The rental residential property will in this context be assessed in relation to balance group i (commercial buildings), this means that the building must be depreciated according to balance group i (commercial buildings). The basis for this is that the rental value for the commercial part and the rental residential property is higher than in “Buildings and installations, hotels, etc.”.

The owner’s own residential property cannot be depreciated, and the cost price related to this part must be removed when calculating the depreciation basis. If the building has a total cost price of NOK 10 million (excluding the plot of land), the depreciation basis in balance group i (commercial buildings) will be (NOK 10,000,000 x 65 percent) NOK 6,500,000 (the entire cost price with the exception of the owner’s own residential property).

You may claim a deduction for the municipal taxes that you pay for your rental property.

You may claim a deduction for insurance related to the rental residential property.

If you pay property tax for the rental property, this amount is deductible.

On the other hand, wealth tax on your rental property is not deductible.

You may claim a deduction for expenses related to advertising the rental property. The same applies if you pay for intermediation and showings to find a tenant. 

If you pay ground rent for the plot of land of the rental property, this amount is deductible. Ground rent (lease of plot of land) is paid to the landowner if you do not own the plot of land yourself.

You may claim a deduction for electricity, heating, and cleaning if you pay for them. If the expenses are included in the rent, it's implicated that paid by you.

You may also claim a deduction for cleaning products that you've paid for.

The normal wear and tear on furniture and home contents is deductible.

Some investments may be claimed as deductions right away. Others must be depreciated, which means that the expense is deducted over several years. When you depreciate an asset, it means that you're claiming a deduction for the asset’s reduction in value as the result of wear and tear caused by normal use.

If you rent out the residential property with furniture and home contents included, you may claim a deduction for all your expenses in the year of purchase if:

  • They're mainly purchased for use in the rental property, and
  • their value is reduced as a result of wear and tear and/or ageing, and
  • they have an input value of less than NOK 15,000 (NOK 30,000 for 2024) or a service life of less than three years
Example:

If you buy a bed for NOK 13,000, you may claim a deduction for the entire amount in the year of purchase. The same applies if you buy a snow shovel that costs NOK 700.

Depreciations

If the purchase price of furniture and home contents is NOK 15,000 (NOK 30,000 for 2024) or more, you can depreciate the cost (balance group d, depreciation rate 20 percent). In practice, it will never reach zero, but when the amount is less than NOK 15,000 (NOK 30,000 for 2024) before the annual depreciation, the entire residual value (balance) is deductible.

Depreciation example:

If you buy a couch that costs NOK 50,000 in year 1, you can claim a deduction for depreciations amounting to (NOK 50,000 x 20 percent) NOK 10,000 in the first year. In year 2, the residual value is (NOK 50,000 – NOK 10,000) NOK 40,000, and your deduction for depreciations amounts to (NOK 40,000 x 20 percent) NOK 8,000 for the second year.

If the rental period is less than three years, and you own and use the furniture yourself before and after the rental period, you can claim a deduction for 15 percent of the gross rental income instead of balance depreciations.

Example:

You’ll be renting out your furnished residential property for two years. The agreed annual rent is NOK 200,000. Instead of balance depreciations, you can then claim a deduction of (NOK 200,000 x 15 percent) NOK 30,000 in both year 1 and year 2, (in total, NOK 60,000).

You can claim a deduction for travel expenses connected to the rental. For example, showings, maintenance and supervision. Presuming the rental activity is not considered business activity, you can claim a deduction for your actual costs. If you use your own car, you can claim a deduction according to the rate for business travel.

If you run the rental activity as a business, you can claim a deduction according to the general rules for travels to/from work and business travels. In the case of up to 10 trips per year to a rental property or if you’re required to spend the night away from home, the trips are considered business travels. If the travelling involves more than 10 days a year and you do not stay overnight on the trip(s), this will be considered work-related travels. If you’re not sure whether the trip is work-related travel or business travel, contact the Tax Administration.

If you’ve opened a security deposit account in your bank in connection with your rental activity, you can claim a deduction for the fee.

You may claim a deduction for expenses related to property valuation and surveys of the residential property for the purpose of reporting area information in connection with the assessment of the taxable value.

You can claim a deduction for the value of your own work effort if you carry out maintenance work on your rental property. However, this presumes that the same amount has been entered as income in your tax return for the same year in which you carried out the work. This is because the value of the work you carry out is taxable. You can only claim a deduction for this in the same year in which you carried out the work. 

The value of the work you carry out must be set to what it would have cost to have work of the same quality performed by others. The hourly rate for non-tradesmen must generally be set lower than what a tradesman would have charged, for example to the hourly rate for unskilled labour.  You can find the rates on the Norwegian Labour Inspection Authority’s website.

The value of the work you carry out related to improvements cannot be deducted, but the value of such work can be added to the input value if you later sell the property. The value of the maintenance work you carry out cannot be added to the input value if you later sell the property.

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