In the taxation of rental income, the net amount of the income obtained is determined in two different ways as follows:
• Actual expenses method,
• Lump-sum expenses method (for other than those who lease rights).

The selection of the actual expenses or lump-sum method should cover all immovable property, which means that it is not possible to choose the actual expenses method for some part and the lump-sum expenses method for the remaining part.

Taxpayers opting for the lump-sum expenses method cannot return to the actual expenses method unless two years have passed.

6.1. Deduction of Expenses in Actual Expenses Method
If the actual expenses method is chosen, following actual expenses can be deducted from the gross amount of rental income:
• Lighting, heating, water and elevator expenses paid by lessor for rented property,
• Management costs which are measured according to the importance of property and related with the administration of the rented property,
• Insurance expenses relating to the rented property and rights,
• Interest of debts relating to the rented property and rights,
• 5% of acquisition value of one rented house for 5 years beginning from the date of acquisition (This deduction applies only to rental income of the rented house; non- deductible part is not evaluated as expenditure surplus. This deduction is not valid for houses acquired before 2016),
• Taxes, duties and fees paid for the rented property and rights and rates paid to municipalities for expenses by lessor,
• Depreciation setting aside for rented property and rights, and heat insulation and energy saving expenditures which are made by the lessor and that increase the economic value of the real estate. (These expenditures can be considered as cost if it exceeds 1.400 TL for the year 2020.)
• Repair and maintenance expenses incurred by lessor for the rented property,
• Rents and other actual expenses paid by sub-lessors,
• Rent of the house accommodated by the lessors who rent their own property, (non- deductible part is not evaluated as expenditure surplus),

It is not allowed for taxpayers not residing in Turkey, (including Turkish nationals who reside abroad for a continuous period of more than six months with a residence or work permit) to deduct the amount of rents they pay in a foreign country from their rental income obtained in Turkey.

• Cost of loss, detriments and compensations paid for rented property and rights based on a contract, law or court decree.

Non-residents who have opted for the actual expenditure method should keep the documents showing the expenses incurred for a period of 5 years and submit to the tax office when required.

6.1.1. Calculation of Deductible Expenses in Case of Exception in Actual Expenses Method
In cases where, a taxpayer chooses the actual expenses method and benefits from the exception applied to rental income from house, the amount of actual expenses corresponding to exception is not deductible from gross revenue.

The deductible expenses part corresponding to the taxable revenue can be calculated using the following formula

Deductible expenses = Total Expenses x Taxable Revenue* / Total Revenue

(*) Taxable Revenue = Total Revenue – Amount of Exception for Rental Income from House

Example: Taxpayer (C) rented his/her house in 2020 and obtained 60.000 TL of rental income. Taxpayer, who has no any other income, incurred 15.000 TL of expenditure for his/her property and chooses the actual expenses method.

The amount that taxpayer can deduct as actual expenses will be the amount that corresponds to the taxable revenue of the total expense for 15.000 TL.
Taxable revenue = 60.000 – 6.600 = 53.400 TL
Deductible expense = (15.000 x 53.400) / 60.000 = 13.350 TL
In this case, the amount of actual expense to be deducted from the rental income is 13.350 TL.

6.2. Deduction of Expenses in Lump-sum Expenses Method
Taxpayers opting for the lump-sum expenses method can deduct the lump-sum expense at the rate of 15 % on the remaining amount after deducting the amount of exception from their rental incomes against actual expenses.

It is not possible to opt for lump-sum expenses method in the case of leasing rights. For instance, taxpayers, who gain office rental income and income from leasing rights, should choose actual expenses method since they should declare rental income from leasing rights at their tax return.

Taxpayers who have opted for the lump-sum method can deduct as a lump- sum expenses at 15% of their revenue. The lump-sum expenses rate is determined at 15% of the revenue to be applied to rental income from the date of January 1st, 2017. (The lump-sum expense shall be
calculated on the remaining amount after deducting the amount of exception for taxpayers who obtain a rental income and who are able to benefit from the exception for rental income from house.)