When is the rental of a property considered a business activity?

Renting out your property can be a profitable source of income, but it is important to understand when the rental is classified as a business activity. This classification affects both taxation and administrative obligations. In this article, we explain the criteria used to determine whether your rental activity is considered a business, how the number of rented properties and the length of rental periods influence the assessment, and how offering services such as cleaning and breakfast may affect the classification. We also look at the deductions available when property rental is treated as a business activity.

Quote:
“Providing services such as cleaning and breakfast when renting out a property can lead to the activity being classified as a business.”

If certain conditions are met, rental activity may be classified as a business, which means the income is taxed as business income and you may be required to pay self employment contributions. To classify rental activity as a business, three main criteria must be fulfilled:

The number of properties you rent out can influence whether the activity is deemed a business. Renting out several properties increases the likelihood that the Swedish Tax Agency will classify the activity as business-related, especially if the rentals occur regularly and with the intention of making a profit. Even if each individual rental seems small, the overall scope may lead to the activity being considered professional.

How long and how often you rent out your property is crucial for determining whether it is considered a business activity. Regular and long-term rentals, rather than occasional or temporary arrangements, make business classification more likely. Occasional rentals, for example during holidays, are usually treated as private rentals and taxed as capital income.

Offering additional services together with the rental, such as cleaning, linen changes or breakfast, may influence how the activity is classified. If these services are provided regularly and in a way that resembles hotel operations, the rental is more likely to be seen as a business. This can lead to the activity being subject to VAT and taxed as business income.

Read also: When does rental income become subject to VAT?

When rental activity is classified as a business, you can deduct expenses that are necessary for running the business. This includes costs for operation, maintenance and repairs of the property. You may also deduct depreciation through annual write-offs on the building.

It is important to carefully document all expenses and ensure they are directly related to the rental activity in order for the deductions to be accepted by the Swedish Tax Agency.