Tax Observatory › Direct taxes › Non-business property and uncollected residential rents: losses and write-downs not deductible

Non-business property and uncollected residential rents: losses and write-downs not deductible

In judgment No. 26363 of 7 October 2026, the Corte di cassazione (Italian Supreme Court) held that a company owning immobili-patrimonio (property that is neither used in the business nor held for sale) let for residential use may not deduct bad debt losses, or provisions for doubtful debts, on unpaid rents. The basis is not Article 90(2) of the TUIR (Italian Consolidated Income Tax Act), but the cross-reference in Article 90(1) to Article 26 of the TUIR. The principle was stated with reference to the wording in force before Decree-Law No. 34/2019, but the reasoning remains relevant.

In judgment No. 26363 of 7 October 2026, the Corte di cassazione held that a company holding immobili-patrimonio let for residential use may not deduct bad debt losses, or provisions for doubtful debts, on rents it has not collected: those rents are included in taxable income under the rules on income from land and buildings (redditi fondiari) even if they are not received, until the convalida di sfratto (eviction validation proceedings) for non-payment of rent has been concluded. The case concerns the 2011 tax year and the wording of Article 26 of the TUIR in force before Decree-Law No. 34/2019, but the decision remains relevant today for property investment companies and holding companies that let residential property.

The case and the decision

For the 2011 tax year, a property company within the domestic tax consolidation (consolidato fiscale nazionale) had deducted bad debt losses of €258,696.11 on unpaid residential rents and a provision for doubtful debts of €28,865.25. The Provincial Tax Court of Turin had dismissed the company’s challenge to the notice of assessment; the Regional Tax Court of Piedmont had instead allowed the appeal. The Corte di cassazione allowed the appeal on points of law brought by the Italian Revenue Agency (Agenzia delle entrate), laid down a principle of law, set aside the judgment and referred the case back to the Second-Instance Tax Court of Piedmont.

Article 90(2) of the TUIR, which makes expenses and other negative income components relating to immobili-patrimonio non-deductible, covers only the expenses already reflected in the cadastral valuation tariff (tariffa d’estimo): bad debt losses do not fall within it. Non-deductibility instead follows from Article 90(1) of the TUIR, which refers to the provisions of Chapter II of Title I and, through them, to Article 26 of the TUIR. The Court rejected the argument, put forward by the Public Prosecutor (Pubblico ministero) and by the respondent company, that the cross-reference was limited to Articles 28, 34 and 37 of the TUIR. If rents are taxed even when they are not received, deducting the loss on them, or making a provision for doubtful debts in respect of them, would defeat that taxation.

The correct mechanism was the tax credit for the taxes paid on rents whose non-receipt is established in the convalida di sfratto, where those proceedings have been brought and concluded. Rents accrued after the conclusion of the proceedings and nonetheless taxed were not at issue; in any event, the taxpayer had not applied for a refund of the tax paid on them.

Immobili-patrimonio, business-use property and trading stock

Immobili-patrimonio are neither business-use property (strumentali) nor trading stock (beni-merce). Their income is determined on a cadastral basis. Where they are let, it is equal to the higher of the cadastral income uplifted by 5 per cent and the rent net of documented ordinary maintenance costs borne by the landlord, capped at 15 per cent of the rent. They typically include residential units that a property investment company or a holding company lets to third parties.

Property that cannot be put to a different use without radical alteration is, by contrast, business-use by nature (strumentali per natura) under Article 43(2) of the TUIR, even if let, and falls outside the judgment. According to administrative guidance, this covers units in cadastral groups B, C, D and E and units in category A/10 where the building authorisation (titolo edilizio) provides for office use. Unsold homes held by a construction company, which are trading stock, are also outside the scope of the decision.

The position today

Under the wording now in force, Article 26(1) of the TUIR excludes residential rents not received from income where non-receipt is evidenced by an eviction notice for non-payment of rent (intimazione di sfratto per morosità) or by an order for payment (ingiunzione di pagamento); the tax credit for rents whose non-receipt is established in the convalida di sfratto remains available. The amendment made by Decree-Law No. 34/2019 originally applied to leases entered into on or after 1 January 2020; Article 6-septies(2) of Decree-Law No. 41/2021 extended it to all rents not received on or after that date. With effect from 1 January 2027, the TUIR will be replaced by the new consolidated income tax Act approved by Legislative Decree No. 117 of 19 June 2026 (Article 377 of that Act): Articles 26 and 90 become Articles 28 and 99, with identical content, so the Court’s reasoning remains valid.

Since Article 90(1) refers to Article 26 as a whole, in our view the current rule also applies to companies. Circular No. 150/E of 7 July 1999 and the instructions to the Unico return for corporations already treated the tax credit as available for IRPEG (the former corporate income tax) as well. There is, however, no administrative guidance issued after 2019, and the separate taxation (tassazione separata) of rents collected at a later date (Articles 17 and 21 of the TUIR), a feature of IRPEF (personal income tax), is not coordinated with the rules on business income. In our view the corollary remains unaffected: the loss is not deductible either before the eviction notice, when the rents are taxed, or after it, when they are excluded from income.

For tax years up to 2019, the principle affects pending proceedings: it is no longer enough to argue that the losses do not fall within Article 90(2). The reasoning stated in the notice of assessment must, however, be examined. The Court reached its decision because the notice expressly relied on Article 90(1) and Article 26 as well; where the notice is based solely on Article 90(2), the taxpayer may argue that the tax claim cannot rest on a different legal basis, but the outcome is not certain.

In practice

• When preparing the year-end financial statements, classify each property as immobile-patrimonio, business-use property or trading stock, and record the reasons. Write-downs and losses on residential rents from immobili-patrimonio remain in the financial statements, but are added back in the tax return (for rents not received on or after 1 January 2020, as a prudent approach and on our reading).
• If the tenant is in arrears, serve the eviction notice for non-payment of rent or apply for an order for payment without delay: for rents not received on or after 1 January 2020, it is the eviction notice, or the order for payment once issued, that excludes them from income. For companies, this is our own reading, not supported by administrative guidance; it should also be checked by when, relative to the filing of the tax return, the notice or order must be in place.
• Once the convalida di sfratto is concluded, calculate the tax credit by recomputing the tax for the years concerned and claim it in the first available tax return, within the ten-year limitation period, or apply for a refund instead. For companies, the procedure is derived by analogy from the administrative guidance issued for individuals.
• Keep the leases, the eviction notice or order for payment, the documents of the convalida di sfratto, the tax returns in which the rents were taxed and the recalculation schedules.

Frequently asked questions

Does the judgment also apply to rents not received after 2019?

The principle was stated with reference to the wording in force before Decree-Law No. 34/2019. Today, residential rents not received on or after 1 January 2020 are excluded from income if an eviction notice for non-payment of rent has been served or an order for payment issued; in our view, deduction of the loss remains barred in any event.

Does it also apply to commercial leases?

As a rule, no. For a company, non-residential property that is business-use by nature remains so under Article 43(2) of the TUIR even if let: it is not an immobile-patrimonio, the rents are revenue recognised on an accrual basis, and Articles 101 and 106 of the TUIR apply to losses on, and write-downs of, the receivables. The administrative guidance under which non-residential rents must be reported for as long as the lease is in force applies to individuals. For non-residential buildings that are not business-use property, and are therefore immobili-patrimonio, the income is income from land and buildings and, in our view, the rents are included in income even if not received, because the exception for residential property does not apply to them: a fortiori, the Court’s reasoning leads to the non-deductibility of losses and write-downs. For land, the position must be examined case by case.

Is a construction company that lets unsold homes affected?

If the homes are trading stock, no: the rents are business revenue, and Articles 101 and 106 of the TUIR apply to bad debt losses.

Sources

Corte di cassazione, Fifth Civil Division, judgment No. 26363 of 7 October 2026 (hearing of 22 September 2026), ECLI:IT:CASS:2026:26363CIV, General Register No. 23539/2019, and the earlier decisions cited therein (Cass. No. 11556/2018, No. 30372/2019, No. 22906/2020, No. 37384/2022).

Articles 17, 21, 26, 43, 90, 101 and 106 of Presidential Decree No. 917 of 22 December 1986 (TUIR), wording in force as published on Normattiva as at 16 October 2026, repealed with effect from 1 January 2027 and carried over into Articles 19, 23, 28, 45, 99, 110 and 115 of the new consolidated income tax Act approved by Legislative Decree No. 117 of 19 June 2026 (Articles 376 and 377).

Article 3-quinquies of Decree-Law No. 34 of 30 April 2019, converted into law by Law No. 58 of 28 June 2019.

Article 6-septies(1) and (2) of Decree-Law No. 41 of 22 March 2021, converted into law by Law No. 69 of 21 May 2021.

Corte costituzionale (Italian Constitutional Court), judgment No. 196 of 2022.

Italian Revenue Agency, Circular No. 15/E of 19 June 2023 (tax credit for unreceived rents); Circular No. 11/E of 21 May 2014, answer 1.3; Ministry of Finance, Circular No. 150/E of 7 July 1999, section 1.1.

Italian Revenue Agency, Circular No. 39/E of 15 April 2008, and Resolutions No. 56/E of 9 April 2004 and No. 280/E of 4 July 2008 (property that is business-use by nature).

Italian Revenue Agency, instructions to the Redditi SC (corporate income tax) return (immobili-patrimonio, Article 90 of the TUIR) and to the Unico 2004 return for corporations (tax credit for unreceived rents).