Many people with a vacation home abroad rent it out to others to generate extra income. But can you just rent out your vacation home abroad? I did some research and found an answer on the tax authorities’ website.
First, it is important to be clear about what exactly a vacation home or 2nd home means. The tax authorities say the following: a second home is a home that you own but do not live in. So a vacation home is also included in this. This is the tax authority in the Netherlands, check this with your country.
Box 1 and 3 of the tax system
Our tax system has 3 taxable boxes for our income. Each box has a different tax rate and depending on the category the items fall into, you pay taxes. The home that you own and actually live in falls into box 1 along with your income. However, a vacation home or other 2nd home is not included in this. This falls in box 3 under ‘other real estate’. This category includes a house that you rent out, a garage that is not part of a house or a separate plot of land. So you do pay taxes on a second home, since the house falls into box 3, but the income you generate by renting it out does not have to be declared. That’s nice to know! So you can keep the rent yourself.
Did you know that we completely remodeled our house on Karpathos? Check out our blog about the renovation and our Youtube video of the result here.
When is renting out your vacation home abroad not allowed?
Although you may rent out your vacation home and not report the rent to the IRS, there are still some rules. You are not allowed to offer services related to the rent. Think of breakfast or bedding. You are also not allowed to maintain contact with tourist agencies (that help you with the rental). If you do this, it may be (depending on the amount) that you have to report all income (including the rent). You do this in box 1 under ‘other work’.
You may also offer services that are not necessarily related to the rental such as giving a tour to your guests for a fee. You have to report these extra services in box 1 under ‘other work’. If you make such money with it and it is not a one-off, you can be seen as an entrepreneur.
Read the articles from the Tax Office here
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