Generating additional income by renting out a home is an excellent opportunity. However, it's important to consider which taxes you pay and how the Dutch Tax Authorities will tax your income.

The specific amount of tax owed varies depending on the situation. This blog article explores the taxes property investors face and how it impacts their income. One of the taxes property investors need to pay includes:

Property Tax (OZB): if you own a (second) home, you pay property tax, and the rate is set by the municipality where the house is situated.
Wealth Tax: if the value of your second home exceeds the exemption limit, this tax, which is contingent on the total value of your assets, may apply. (This tax does not apply when you benefit from the 30% ruling!)

How is income taxed in the Netherlands?

Income tax is categorized into three boxes by the Dutch Tax Authorities:

Box 1: Income from work.
Box 2: Income derived from a substantial interest.
Box 3: Income from savings and investments.

Your tax return typically categorizes a second home as an asset in Box 3, while your residential home is in Box 1. Here are different situations and how they impact your tax.

Income taxes and renting our second home/ holiday home

If you rent a second home, like an investment property, it's considered part of your assets (capital) and os considered in Box 3. You have to inform the tax authorities about the home's value. The starting point for a home rented temporarily is the property tax value. You should declare a percentage of the WOZ value if it's rented indefinitely.

Income taxes and renting your property temporarily

If you temporarily rent out your home, e.g., while on an extended trip or working abroad, you must report 70% of the rental income to the tax authorities as income from a temporary rental. You can subtract directly related costs from this amount, like cleaning services, the tenant's gas and electricity use, and the rental agent's fee.

Income taxes and real estate portfolio

When growing your real estate business, it matters whether it falls under box 1 or box 3. Most private investors prefer box 3, where rental income and value appreciation stay untaxed. If you are a landlord managing assets without actively exploiting real estate, it's considered box 3. However, it needs to be clarified, and the tax authorities might treat the income as business profit, resulting in progressive taxation in box 1 for active asset management.

How much do you earn as a property investor?

Figuring out rental income is essential to understanding how profitable your rental property is and what taxes you pay. What you should think about:

Gross rental income: start with the total annual rent you expect to receive.
Deduct expenses: you should also consider extra expenses related to your property, such as mortgage interest, maintenance costs, property management fees, insurance, and property taxes.
Non-deductible costs: some costs, like buying the property, are not deductible.
Taxable amount: the remaining amount after deducting expenses is your net rental income, which is then taxed at a predetermined rate based on your total income.