Luxembourg Rental Income Tax Guide

Overview — Rental Income Taxation

Rental income in Luxembourg is classified as income from immovable property (revenus de biens immobiliers) and is subject to progressive IIT rates (0%–45.78%). The gross rental income minus allowable deductions equals the net taxable rental income, which is added to the taxpayer's other income (employment, business, investment) on the annual tax return. Both residents and non-residents with Luxembourg rental property are subject to these rules.

IIT Rates — 0% to 45.78%

Rental income is added to total taxable income and taxed at the taxpayer's marginal IIT rate:

• Class 1 (single): Progressive rates from 0% (up to EUR 12,438) to 42% (at EUR 200,004+), plus employment fund surcharge (9%–10%) bringing the top rate to approximately 45.78%
• Class 1A (single parents, 65+): Wider brackets (1.5× Class 1), reducing the effective rate
• Class 2 (married filing jointly): Income splitting — combined income divided by two, taxed at Class 1 rates, then multiplied by two

Allowable Deductions

Landlords can deduct the following expenses from gross rental income:

• Mortgage interest: Interest on loans used to acquire or improve the rental property is fully deductible
• Maintenance and repairs: Costs of maintaining the property in good condition (but not capital improvements)
• Property insurance: Premiums for building and liability insurance
• Property management fees: Fees paid to a property management company
• Impôt foncier: Annual property tax paid to the commune
• Depreciation: 2% per year on the building value (not land) — a significant non-cash deduction
• Administrative costs: Costs for preparing lease agreements, tax returns related to the property
• Vacancy period expenses: Mortgage interest and property tax during vacancy periods are deductible

Depreciation (Amortissement)

Depreciation is a key tax benefit for rental property owners:

• Building value only: 2% per year on the acquisition cost of the building (excluding land value)
• Land value: Not depreciable (land is considered a non-wasting asset)
• Useful life: 50 years (100%/2% per year)
• Furnished rentals: Furniture and fixtures can be depreciated at 10%–20% per year
• No recapture on sale: Depreciation is not recaptured upon sale due to the favourable capital gains exemption for long-held properties

Capital Gains on Rental Property

When a rental property is sold, capital gains are treated as follows:

• Held more than 2 years: Gain is fully exempt from tax
• Held 2 years or less: Gain is taxed as speculative income at progressive IIT rates
• Principal residence: Always exempt regardless of holding period

Non-Resident Landlords

Non-residents who own rental property in Luxembourg are subject to the same tax rules as residents. Rental income from Luxembourg real estate is considered Luxembourg-source income and must be declared on a non-resident tax return. Non-residents may elect to be treated as residents for tax purposes if they earn at least 90% of their worldwide income in Luxembourg. The net rental income is taxed at progressive IIT rates. Mortgage interest and other deductions are available to non-residents on the same basis as residents.

FAQs

Can I deduct mortgage interest on my personal residence?

Mortgage interest on the taxpayer's principal residence is also deductible, but with limits. For owner-occupied housing, the deduction is capped at EUR 2,000 per year for the first 5 years and reduced amounts thereafter. For rental properties, mortgage interest is fully deductible with no cap.

Is rental income subject to social contributions?

No, rental income is not subject to social security contributions in Luxembourg. Only employment income and self-employment income trigger social contributions.

Do I need to declare rental income if I use the property myself part-time?

Yes, if you rent out a property for part of the year, the rental income received during the rental period must be declared. Expenses must be apportioned between the rental period (deductible) and personal use (not deductible).

Disclaimer

This guide provides general information about Luxembourg rental income taxation for the 2026 tax year. Tax laws and rates may change. Always consult with a qualified Luxembourg tax advisor (conseil fiscal) or the ACD directly for advice specific to your situation. InvestmentKit does not provide tax advice.