November 12, 2019

Real estate leasing – A valid alternative to the purchase mortgage.

Real estate leasing – How much it costs and what are the tax breaks

Real estate leasing - How much it costs and what are the tax breaks

If you want to buy your first home or office, you may not know that in addition to turning on a mortgage you can also consider the possibility of a real estate lease. If you are not clear on what we are talking about and how it works, continue reading the article: I will try to answer all your questions.

An asset to offers

What

The lease is a lease of an asset that offers, to those who use it for the duration of the contract, the possibility of redeeming that asset at the end of the contract by paying the remaining amount or returning it. In the field of real estate leasing, it is necessary to distinguish between housing leases (especially in recent years due to the real estate market crisis) and leasing of commercial, industrial or office buildings, widely distributed thanks to tax deductions that have always accompanied them.

In both cases, if you decide to take advantage of a real estate lease, at the time of signing the contract you can indicate, to the bank or finance company to which you have addressed, the property you wish to be able to buy in the future or that you wish to build on a given land, and the financial institution undertakes to buy it or have it built according to your directives after the receipt of the agreed advance ( initial maxi-fee or signing fee ).

At this point, for the number of years indicated in the contract, the institution in question grants you a payment of a monthly fee, at a fixed or variable rate. When the contract expires you will have three options:

    • redeem the apartment by paying in a single maxi final installment what still remains to be paid of the value of the property at the price it had at the time the contract was stipulated, net of the advance and the monthly payments, which in this case act as advances. In most cases the price of the property is advantageous compared to the current market prices, because it dates back to years before not having suffered inflation;
    • extend the leasing contract by maintaining the conditions unchanged or renegotiating them with the financial institution, in the hope of being able to redeem the property in the future;
    • leave the apartment and return it to the financial institution or bank, as if it were a common lease.

Tax Deductions Commercial,

Tax Deductions Commercial,

Industrial or office leasing benefits from tax advantages that make the difference. The monthly fees relating to this category of buildings are in fact fully deductible if they are buildings that are instrumental to the company and if the contract has a duration of between 12 and 18 years.

VAT is split into monthly fees, which positively limits the economic impact on the company’s liquidity. Furthermore, leasing allows the entire property value to be financed.

The 2015 Stability Law established new advantageous rules also concerning real estate leasing for first homes, valid from 1 January 2016 until 31 December 2020, which make it much more attractive. Until then, leasing could be used only to purchase apartments not used as a main residence.

This law introduced the possibility of accessing tax deductions also to private individuals with an annual income of less than $ 55,000 still without a home, benefits that are added to those already present for the purchase of a first home. Leasing offers the best benefits to those under 35 years. Indeed:

      • young people under 35 can request a tax deduction of 19% of the monthly lease payments, up to a maximum of $ 8,000 per year and a deduction of 19% on the final redemption, up to a maximum of $ 20,000;
      • for the over 35 the deductions granted are always 19%, but the maximum ceilings fall: $ 4,000 for the rents and $ 10,000 for the redemption price.

Furthermore, the applied VAT will be 4% instead of 10%, regardless of the cadastral category to which the property in question belongs.

Real estate leasing versus mortgage loan

Real estate leasing versus mortgage loan

Real estate leasing has a registration tax on the “first home” purchase reduced to 1.5% compared to that due with a mortgage. Furthermore, the lease does not include the substitute tax of 0.25% present instead on mortgages. The tax deductions in the lease concern the entire amount of the rent while in the mortgage they are limited to the interest portion.

Furthermore, the investment can be “tax expensed” (as they say in technical jargon) faster. In favor of the loan there is the possibility of transferring it free of charge to a bank that offers more advantageous conditions; this cannot be done with a lease, but the latter allows you to suspend the payment of the monthly fees up to 12 consecutive months, only once during the contract, in case of loss of work.

Another aspect to consider is that the monthly lease payment can be a little higher than the mortgage installment because the contract is usually shorter. In short, it is not easy to compare these two different types of contracts. The best way is probably as always to compare the overall costs and the sustainability of the operation.

However, leasing is a flexible form of contract, as it is possible to agree upon the amount of the initial and final maxi installment based on your needs during the stipulation.

Useful information

Useful information

It may be useful to know that if at some point you become a bad payer, the financial institution has the right to proceed with the eviction. If instead, during the lease term, the financial company with which you entered into the contract should go bankrupt, the latter will proceed regularly and the bankruptcy laws will be applied to it.

Not all banks and financial institutions have added real estate leasing to their products, also because it is a type of operation that makes them in fact property for the duration of the contract, and loading the company’s balance sheet with such properties could certain cases be even counterproductive. 

Personal opinions

It is not easy to answer the question: does real estate leasing pay? On balance, given the tax deductions to which it is subject, yes, it could be convenient. However, it is necessary to have an initial advance capital and an equally large one at the end to support the maximum installments provided for in the contract and this is not always easy to manage. The loan instead allows you to pay in installments until the end in constant installments, especially if you choose the fixed rate.

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