Many married couples jointly own a property that they rent out. This could be, for example, a purchase made to help children enter the housing market or as a sound investment for the future.
One of the questions that frequently comes up among Reportability users is: How do we allocate our income and expenses from property rentals when we own the property jointly?
We have therefore gathered the most important points from tax legislation so that you can feel confident in your choice when reporting your results to the Danish Tax Agency (Skattestyrelsen).
Who is taxed on the rental income?
Let’s be clear from the start: You cannot freely choose who is taxed on the rental income. It might be tempting if, for example, one of you pays the top tax rate and the other does not.
For spouses who jointly own a business, including rental operations, this income is attributed to the spouse who manages the business.
In practical terms, this means that the spouse who primarily handles contact with the tenant, collects rent, arranges maintenance of the property, etc., must be taxed on the result.
According to tax legislation (Skat.dk) it is also this spouse who can deduct operating expenses and interest costs – even if you own the property jointly.
Can we split the result between us?
When you and your spouse operate a rental business, you generally have the option to split the tax result between you.
This requires that you:
- Both participate significantly and equally in the operation of the rental business.
- Both are liable for the obligations of the business/property to the same extent.
- Both can provide a valid justification for the allocation, for example, based on the work effort involved.
- Have not entered into a salary agreement with one of the spouses for all or part of the year.
The rule regarding the free allocation of the result is particularly useful if you wish to reduce your total tax or ensure a fair distribution of your finances.
Three tax considerations that can save you money
If you do not meet the requirements to split the result equally between you, or if you simply want the entire result to be reported by one of you, you can consider the following:
- Does one of you have a lower income?
If one of you has an income below DKK 423,474 (including labor market contribution), it may be tax-advantageous to report the profit under that person, as they can receive the full employment deduction.
- Does one of you have unused deductions?
If one of you is not fully utilizing their personal allowance, it may mean that a portion of the profit is not taxed.
- Does one of you pay top-bracket tax?
If one of you is approaching the top-bracket tax threshold, it may be advantageous to report the profit under the person with the lower income. This can save you 15% in additional top-bracket tax (2024 rate).
You may see the pattern in these considerations. Naturally, it is most advantageous to report the tax for the rental property under the person with the lower tax rate.
However, remember that as a general rule, you cannot freely choose who should be taxed on the result – it depends on who operates the business.
What happens in the event of changes or divorce?
Changes: If you want to adjust the distribution or change your tax assessment notice, you can do this yourself no later than June 30th of the second calendar year following the end of the income year. If you need to go further back, you must request this from the Danish Tax Agency.
Divorce: If you separate, the right to freely distribute the result ceases. This means that the income must be distributed according to the ownership of the property, unless one of you buys out the other.
How do we do it – in practice?
When you register the property on skat.dk, you choose how the tax result should be distributed. If your financial situation changes and you wish to change the distribution, please note that this can only be done once.
With Reportability, it is easy to distribute and report the results of your rental property to the tax authorities. Our online tool guides you through the legislation in 5 steps, helping you optimize your taxes and report your preliminary income assessment and tax assessment notice to the Danish Tax Agency.
In the final step of the tool, you can choose how you wish to report. Select whether it should be under one of you, or if it should be split equally between you. You will then receive a specific guide for the reporting process.
Throughout the process, you can always contact us via the chat if you have any questions.
