Tax Plan Would Change Rules For Landlords, Renters

March 17, 2006

If the tax reform bill approved last month in first debate by the Legislative Assembly clears the remaining hurdles, landlords will face new tax requirements: namely, a 13% value-added tax on all rent income. However, many renters will receive an income-tax break.

The tax plan, or Permanent Fiscal Reform Package, would convert the existing 13% sales tax on a limited number of goods and services to a value-added tax on a much broader range of the items, including rent, according to the daily La Nación Under the plan, a property owner who rents a house at ¢100,000 per month would pay ¢13,000 in taxes.

If the plan is approved, the value added tax would take effect two months after the law’s publication in the official government daily La Gaceta. Provisions dealing with income tax would not take effect until Jan. 1, 2007.

Those income-tax provisions hold a pleasant surprise for renters, who would be able to take a deduction of 15% of their total rent expenditures on their tax returns – not to exceed one month’s base salary, now at ¢200,200 (approximately $398).

Property-owners can also include certain expenses, such as those associated with the depreciation of the home or interests on a loan taken out to buy the property, as deductions in their declarations, the daily reported.

The tax plan is now under review by the Constitutional Chamber of the Supreme Court (Sala IV), which has until early April to determine whether the bill contains any unconstitutional provisions. The plan will then return to the assembly for a vote in second debate.

 

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