Thousands of property owners who have been hesitant to rent out their homes now have a new incentive to do so. Under the latest provisions, landlords who convert vacant or short-term rental properties into long-term leases can secure up to 36 months of tax-free rent, provided they meet certain conditions and deadlines.

As Proto Thema reported a month ago, the measure is included in the Finance Ministry’s new tax reform bill, currently under consultation. It is expected to take effect immediately upon publication in the Government Gazette, likely by late October or early November.

The new framework extends the existing incentives for leases signed through December 31, 2026, while updating the conditions under which landlords could lose the benefit. It also introduces new protections for property owners and broadens eligibility to include homes that were previously excluded. The goal is to bring more affordable long-term rental housing to the market—especially for families with children, as well as for doctors, teachers, and uniformed personnel.

What Will Apply from November

Landlords who rent out a home that has been vacant for at least 36 consecutive months will receive a three-year exemption from income tax, initially applying to homes of up to 120 square meters.

However, Article 9 of the draft bill sets the measure’s validity through December 31, 2026, while also revising eligibility requirements.

Under the new framework:

• Tenant departures won’t cancel the exemption. If a tenant leaves early, the landlord keeps the benefit for rent already received and has three months to find a new tenant to continue the exemption.
• Larger homes are included for big families. For families with three or more children, tax exemptions will now also apply to homes larger than 120 sqm, addressing the real housing needs of larger households.
• More flexibility in lease duration. Previously, landlords renting to public sector workers—such as doctors, nurses, teachers, and uniformed officers—often lost eligibility because tenants relocated before completing three years. To address this, the new rules allow for shorter leases of at least six months, as long as they fall within the three-year period. Consecutive rentals to such tenants (for example, school-year leases for teachers) will still qualify for the full exemption.

This flexibility aims to make long-term rentals more attractive, especially in regions and islands where property owners had turned primarily to short-term rental platforms like Airbnb.

Attention: E2 Declarations Required

The tax exemption applies only to homes that were previously declared as “vacant” before being rented out. To qualify, properties must have been listed as “vacant” on form E2 for three consecutive years before leasing.

Alternatively, properties previously used for short-term rentals must have been registered on the short-term rental registry for at least one year before converting to long-term leases.

This means that landlords wishing to start a new long-term lease in 2025 must ensure that their property was declared “vacant” on the E2 for 2022, 2023, and 2024, or that it was listed as a short-term rental for at least one year before the change.

In all cases, the property must be placed under a long-term rental by the end of 2026 to secure the three-year tax benefit.

Surface Area Limits

The basic eligibility limit remains 120 square meters, but the new rules increase this threshold for larger families.

According to Article 9:

• Families with three children can qualify for homes up to 140 sqm.
• Families with four children can go up to 160 sqm.
• Families with five children qualify for up to 180 sqm, with an additional 20 sqm for each child beyond the fifth.

This expansion allows more spacious homes to be rented to families with greater housing needs.

When the Exemption Is Lost

The three-year exemption ends if:

• A tenant leaves and no new tenant is found within three months, or
• The property is listed for short-term rentals (e.g., on Airbnb), even temporarily.

In these cases, the landlord keeps the benefit for rent already exempted but loses eligibility for the remaining period. Future rental income will be taxed at the normal rate, and retroactive taxes or penalties may apply if the property is reclassified as a short-term rental.

Examples

• Vacant property: An 85 sqm apartment that was declared vacant only in 2023–2025 is rented out in November 2025. It does not qualify for the exemption because it wasn’t listed as vacant in 2022.
  However, if the same apartment is rented after January 1, 2026, it becomes eligible for the 36-month tax relief, provided all other conditions are met.
• Short-term conversion: A home that was used for short-term rental in 2024 and converted to a long-term lease later that year qualifies for the exemption. If the conversion happens only in 2025, the exemption applies starting in 2026.
• Public sector tenants: On an island, if a teacher leaves early in May and the landlord rents to another eligible tenant—such as a police officer or hospital doctor—the exemption continues uninterrupted.
  But if the landlord lists the home on a short-term rental platform during the gap, the entire tax benefit is lost.
• Extended vacancy: If a property becomes vacant (for example, due to a tenant’s health issues) and a new tenant is found after five months, the rent earned before the vacancy remains exempt. However, all future rent will be taxed normally.