Italian Italy’s 2026 budget law is out, and if you’re an expat living in (or dreaming of moving to) one of Italy’s charming small towns, there are some important changes you need to know about. The good news? Many of the tax breaks and incentives that make Italian life more affordable are still in place. The catch? Some of the rules are shifting, especially if you own multiple properties or rent them out short-term.
In this guide, we break down the Italy Budget Law 2026 and what actually matters: the new short-term rental threshold (three properties now trigger business status), still-generous renovation deductions (50% on your primary home), income tax relief for middle earners, and special incentives for freelancers, tourism workers, and small-scale farmers.
If you’re planning a renovation or expanding your property portfolio, 2026 is a strategic year to act. Unless the law changes (again), several of these benefits will shrink from 2027 onwards.
Short-Term Rental Rules: Third Property Treated as a Business
If you rent out properties short-term (for example on Airbnb or similar platforms), new rules may classify you as running a business once you exceed a certain number of properties. Starting in 2026, owning and renting out three or more homes short-term is automatically considered a business activity (previously the threshold was five). This means that if you have more than two properties listed as short-term rentals, you are “presumed to be an entrepreneur” for tax purposes. In practical terms, the first one or two properties can still be rented out as a private individual under simplified rules, but a third rental property triggers the need for a partita IVA (an Italian VAT/tax number) and normal business taxation.
For hosts below the three-property threshold, Italy’s special flat tax on rental income (the cedolare secca, a fixed-rate tax in lieu of regular income tax) still applies. The budget law keeps the flat tax rates the same: 21% tax on income from your first short-term rental, and 26% on the second. However, if you have a third rental, you can no longer use these discounted flat rates – all rental income will be treated as ordinary business income and taxed under the standard progressive system. In summary, occasional landlords with one or two holiday homes can continue with the flat 21–26% tax, but those expanding to three or more properties in the tourist rental market will face full business obligations (including registering a company/partita IVA and paying regular income tax and social contributions as a business).
Home Renovation & Energy Efficiency Bonuses (50% vs. 36%)
Italy’s popular tax deductions for home renovations and energy-saving upgrades have been extended through 2026, though the benefit differs if it’s your primary home or a second home. For your main residence, you can still deduct 50% of qualifying renovation or energy efficiency costs from your income taxes. For example, if you renovate your primary house, half the expense can be offset against your taxes (spread over 10 years in equal parts, under the existing scheme). In contrast, for other properties (second homes or investment properties), the deduction is lower – 36% of costs can be deducted. The law essentially maintains the higher incentive for one’s primary home, while a standard rate applies to additional houses.
This extension means that expats and part-time residents investing in fixing up older homes in small towns can still benefit from significant tax savings. The expense limits and procedures remain similar (for instance, a cap around €96,000 of renovation spending per property, claimed over 10 years). Notably, the budget law prevented a scheduled reduction of these bonuses, keeping the 50% rate for main homes in 2026 instead of dropping it. However, starting in 2027 the plan is to reduce the deductions further (to 36% for a primary home and 30% for others), so 2026 is likely the last year to access the higher rates. In short, if you own a house in Italy that needs renovation, 2026 is still a good year to get tax rebates – especially if it’s your primary residence (50% deduction) versus a holiday home (36%).
IRPEF Income Tax Cut for the Middle Bracket
There’s a small income tax relief for middle earners in 2026. IRPEF, which is Italy’s personal income tax (Imposta sul Reddito delle Persone Fisiche), is levied in progressive brackets. The budget law trims the tax rate for the middle bracket (incomes roughly €28,000 to €50,000) da 35% down to 33%. This means if you earn income in that range – for example, through an Italian salary, pension, or taxable self-employment above the flat-tax regime – the portion of your income in that bracket will be taxed at 33% instead of 35%. It’s a modest reduction aimed at giving relief to middle-class taxpayers.
For context, Italy currently has three main IRPEF brackets: 23% on income up to €28,000, now 33% for income from €28,001 up to €50,000, and 43% for income above €50,000. So this change specifically benefits those who have significant income in the middle range – including many working expats or lavoratori a distanza residing in Italy – by slightly lowering their tax bill. High earners (over €200,000) won’t see a benefit, because the law also adjusted deductions to neutralize this cut for them. But anyone with Italian taxable income in the €28k–50k band should notice a bit less IRPEF tax withheld or due for 2026.
“Flat Tax” Regime for Freelancers: Easier Access for Part-Timers
Italy has a simplified flat-tax scheme for solo business owners and freelancers called the“regime forfettario”. This regime allows qualifying self-employed individuals to pay a single flat income tax rate of 15% on their business income (up to a revenue limit, currently €85,000/year, possibly rising to €100k), with minimal paperwork and no VAT charged – it’s very popular among freelancers and consultants. The 2026 budget law extends a recent expansion of access to this regime, which is especially helpful for part-time professionals or people with a day job who also have a side business. Previously, if you earned more than €30,000 from a salary or pension, you couldn’t use the 15% flat-tax regime for any side freelance work. Now that threshold (which was already raised in 2025) is confirmed at €35,000 of employment income for 2026. In other words, as long as your income from a regular job or pension was €35,000 or less in the prior year, you remain eligible to have a small business or freelance activity taxed under the flat 15% regime.
This change is meant to accommodate “mixed” workers who draw a moderate salary and also earn extra on the side. For example, an English-speaking expat in a small town might have a part-time teaching job paying €30k and also do freelance consulting or remote work. Thanks to the higher threshold, they can opt to put their freelance income under the 15% flat tax scheme (regime forfettario) without losing eligibility due to their salary. If their salary was above €35k, they’d be forced into the normal taxation for the freelance income. With the new rule, more people – especially those moving to Italy and keeping some remote income – can benefit from the simpler flat tax on their self-employed earnings (all other requirements of the regime forfettario still apply, such as the cap on business revenue and not exceeding certain professional income limits).
Extended Tax Breaks for Tourism and Hospitality Workers
Many small Italian towns rely on tourism, and the government is continuing a special incentive to boost take-home pay for hospitality sector employees. For 2026 (January 1 to September 30), if you are an employee in the tourism, hotel, or spa sector, you can get a special 15% tax-free bonus on your gross salary for any night shifts or holiday/overtime work during that period. In practical terms, this means if you work, say, overtime on a Sunday at a hotel or do night shifts in a restaurant, 15% of your pay for those hours will not be taxed – effectively letting you keep more of your earnings. This “integrative treatment” was first tried in previous years and is now confirmed for 2026 as well.
There are a couple of conditions. The benefit is aimed at low-to-mid income workers: it applies only if your 2025 employment income was €40,000 or less. Also, it’s not automatic – you would request it from your employer (who acts as the tax withholding agent) and declare that you meet the income condition. The employer gives you the extra untaxed amount in your payslip and then later claims a tax credit from the government to cover it. For workers, it essentially means a bigger net paycheck for peak-season shifts. If you’re an expat working at a local B&B, a seasonal resort, or any tourism-related job in a small town, be aware of this opportunity. It’s designed to encourage staffing for holidays and night hours by letting those workers keep more money in their pocket.
Ongoing Tax Relief for Homes in Earthquake or Disaster Zones
Italy unfortunately has regions affected by earthquakes and other natural disasters, and the government is continuing special protections for property owners in these areas. If you own a home in an officially declared seismic disaster zone (for example, areas struck by major quakes in central Italy), you may be exempt from certain taxes on that property until it’s habitable again. The 2026 budget law extends prior measures such as: no property tax (IMU) on buildings that were destroyed or deemed unsafe, no income tax on any imputed rental value or income from those properties, and exemption from stamp duties for reconstruction-related documents. These reliefs remain in place until the home is repaired and livable, easing the financial burden on affected homeowners.
Additionally, the law refinances and prolongs broader recovery efforts for disaster-hit communities. For example, it continues funding a “Zona Franca Urbana” (urban enterprise zone) in central Italy, which gives tax breaks to businesses in the hardest-hit towns. Mortgage payments on homes and businesses in these zones can still be suspended, and utilities in red-zone areas remain subsidized or free. In short, if you’re a part-time resident or investor in a small town that has suffered a natural disaster, the government will keep supporting you through 2026 with tax exemptions and financial relief. These policies recognize that rebuilding takes time and aim to encourage people to restore and keep properties in these communities rather than abandon them.
Continued Tax Breaks for Agricultural Landowners and Farmers
For those interested in small-scale farming or owning agricultural land in Italy’s towns, the budget law confirms ongoing tax benefits in the agricultural sector. If you qualify as a direct farmer or professional agricultural entrepreneur (coltivatore diretto or IAP), you can continue to take advantage of an IRPEF tax exemption on the deemed income from your farmland in 2026. Specifically, the first €10,000 of your farm land’s income is 100% exempt from income tax, and the portion from €10,001 to €15,000 is 50% exempt. This scheme has been in place for years to support small farmers, and it’s now prorogued through 2026. It means many family farmers or hobby farmers effectively pay no tax on a modest amount of land income.
To clarify, Italy assigns a notional income value to land (‘reddito dominicale’ e ‘reddito agrario‘), and normally that would be taxable. But under this policy, eligible farmers don’t pay IRPEF on that base amount of land income, which encourages cultivation and keeping land in use. Note that this benefit is only for individual farmers who are officially recognized and paying into the agricultural social security system (and not for corporate farming companies). For an expat who might be considering operating an olive grove, vineyard, or other agricultural activity in a small town, this means the small profits (or imputed income of the land) up to those limits are tax-free. The extension of this tax break through 2026 aims to support rural economies and preserve agricultural traditions in Italy’s countryside.
A Policy Tilt Against Concentration of Property Ownership
Taken together, many of these measures signal a clear policy direction: the government is favoring primary home owners and small-scale investors over large-scale property holders. The 2026 budget shows a push to discourage the concentration of multiple properties in one person’s hands (or at least to tax them more like businesses when it happens). For example, the change to short-term rental rules is essentially saying that if you have a portfolio of holiday homes, you’ll be treated as a business rather than a casual host. At the same time, ordinary homeowners are being encouraged to improve their homes (with generous 50% renovation deductions on a primary residence), and first-time buyers or residents get preferential support (such as social housing funds and an easier path to buy via rent-to-buy schemes in the new “Piano Casa” initiatives). The law explicitly kept higher renovation bonus rates for main homes to “support the primary residence” as a cornerstone of housing policy.
In practice, this means Italy is aiming to limit speculative investment and large property accumulations, which can drive up prices and hollow out communities. The focus is on widespread homeownership and use of houses as homes, not just investment assets. We see this in measures like continued tax breaks for rebuilding in disaster-hit villages (to ensure those homes remain in use) and the tax incentives for small farmers (to keep land from falling into the hands of big corporations or lying fallow). Even the tourism labor incentive indirectly supports small local businesses by addressing staff shortages without pressuring them to raise costs. Overall, the budget’s housing and tax measures are aligned with preserving the livability of Italy’s “magic” small towns – encouraging people to live, work, and renovate there, rather than accumulate properties purely for profit. This general policy trend against property concentration is meant to foster more balanced growth and maintain the social fabric of these communities, so they remain attractive and affordable for both locals and foreign residents alike.
È stato utile?
