1. Reminder of how rental investment works
A rental investment is defined by the purchase of a property that will then be rented out to earn additional income. This type of investment will not only allow you to build profitable wealth but also to benefit from tax advantages.
A rental investment is the only investment that offers investors the possibility of building wealth entirely financed by credit: half will be paid by the tenant, and the balance can even be covered by savings. In this case, the savings effort will be reduced.
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NOTE: depending on your personal situation, professional situation, or age, the objectives of your rental investment may change:
- Establishing assets
- Obtaining additional income for retirement
- Tax exemption
- etc.
2. Property deficit in a few words
An accounting mechanism, it will allow property owners to deduct certain expenses from their rental income, that is, the rents they receive from these rented properties.
Further reading : The nuances of taxation for non-professional furnished rental owners
A property owner has a functional deficit when their rental income is less than their property expenses. In this case, they can deduct up to 10,700 euros per year in deficit from their taxable income (including salaries and other income from activity). Beware, although interest on loans is considered a property expense, it cannot alone create the deficit (it is therefore deductible only up to the amount of the rent).
3. The Duflot scheme
The Duflot law allows individuals subject to income tax to reduce their tax by investing in new real estate.
However, one must take into account conditions such as the level of energy performance “BBC label,” the income ceiling of tenants, the rent ceiling, or the prohibition of renting to ascendants or descendants.
From this, the owner of the property will be able to benefit from a tax reduction of 18% of the investment amount, which will be spread over 9 years in a linear and equal manner.
Beware, the tax reduction is calculated on the cost price of the apartment (limited to 300,000 euros per year) and can apply to up to two units per year. It is granted for the year in which you completed the property (or its acquisition, depending on which of these two events occurred last) and is first applied to the income tax due for the same year.
Examples of tax reductions:
- For a cost price of 150,000 euros, the total “Duflot law” reduction over 9 years will be 27,000 euros, and the annual reduction over 9 years will therefore be 3,000 euros.
- For a cost price of 300,000 euros, the total “Duflot law” reduction over 9 years will be 54,000 euros, and the annual reduction over 9 years will therefore be 6,000 euros.
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4. The Duflot Overseas scheme
Replacing the Jego scheme, the Duflot Overseas law is a tax reduction law that will allow individuals subject to income tax to reduce their tax by investing in new real estate in the DOM TOM.
The tax legislation allows for a tax reduction of 29% of the price of the housing returns, up to a limit of 300,000 euros, and spread linearly over a period of 9 years.
The conditions to be met are the same as for its namesake, the Duflot scheme, both in terms of the obligations of the scheme and the types of real estate concerned (Martinique, Guadeloupe, Réunion, Guyane, Mayotte), as well as Saint-Barthélemy, Saint-Martin, Saint-Pierre-et-Miquelon, New Caledonia, French Polynesia, and the Wallis and Futuna Islands.
Examples of tax reductions:
- For an investment of 100,000 euros, the total “Duflot Overseas” reduction over 9 years will be 29,000 euros, and the annual reduction over 9 years will therefore be 3,222 euros.
- For an investment of 300,000 euros, the total “Duflot Overseas” reduction over 9 years will be 87,000 euros, and the annual reduction over 9 years will therefore be 9,666 euros.
5. The Censi-Bouvard scheme
Like the previous provisions, the Censi-Bouvard law is a tax reduction law that allows individuals subject to income tax to reduce their tax by investing in new real estate. The difference here lies in the obligation to invest in a serviced residence. Indeed, the property must be rented unfurnished, namely under the status of
Non-professional furnished rental (LMNP), and its management must be entrusted to a professional manager through a commercial lease.
The tax advantages of Censi-Bouvard are numerous, consisting of:
- a tax reduction of 11% of the total investment amount up to a limit of 300,000 euros invested
- the possibility of recovering the full VAT (19.6%) on the purchase price
- detection of actual costs (insurance premiums, rents and charges, property tax, provisions for co-ownership fees)
- the deduction of 100% of interest on loans within the limit of income of the same nature (B (IC).
The application conditions of the scheme are as follows: a rental period of at least 9 years and the BIC category (Industrial and Commercial Profits) for the rents received instead of the property income category.
Examples of tax reductions:
- For an investment of 100,000 euros, with a VAT amount of 19,600 euros, the “Censi-Bouvard” tax reduction is 11,000 euros over 9 years, or 1,222 euros per year. In total, the tax benefits will amount to 30,600 euros (tax reduction recovery of VAT).
- For an investment of 200,000 euros, with a VAT amount of 39,200 euros, the “Censi-Bouvard” tax reduction is 22,000 euros over 9 years, or 2,444 euros per year. In total, the tax benefits will amount to 61,200 euros (tax reduction recovery of VAT).
6. The LMP/LMNP status
The furnished rental status (professional or non-professional) concerns investments in furnished rentals. These rentals must include a certain number of necessary amenities for daily life (furniture, bedding, gas stove or hot plates, refrigerator, kitchen utensils, etc.) to allow the tenant to immediately use the property and live in it with a minimum of comfort.
Furnished rental encompasses different situations, for example, the classic one that concerns serviced residences or the seasonal one often reserved for students and vacationers.
The furnished rental status offers numerous advantages such as:
- the possibility of recovering VAT on the property (19.6% of the purchase price)
- a flat-rate deduction of 50% on your BIC income (if they are below 23,000 euros of tax per year)
- a rental lease in favor of the owner (compared to a conventional rental lease)
- the possibility of amortizing the asset’s value reasonably through the principle of ARD (deferred depreciation)
Note: the status of professional furnished rental differs from that of non-professional furnished rental in several points. To benefit from the PMT status, you must:
- be registered in the Trade and Companies Register as a Professional Furnished Rental
- generate annual income of more than 23,000 euros including VAT and derive at least 50% of the total household income from the activity
- declare rental income in the BIC
- maintain accounting with the obligation to comply with all declaration and accounting obligations related to companies
7. The Girardin scheme
The Girardin law is a tax reduction law that allows individuals subject to income tax to reduce their tax by investing in new real estate in the Dom-Toms.
The tax advantages of the scheme are as follows:
- A tax reduction of 30% of the total amount of investments in the free sector (i.e., not subject to ceilings) spread over 5 years
- A tax reduction of 38% of the total investments in the intermediate sector (i.e., subject to ceilings) spread over 6 years
- An increase of 3% when the program is equipped with energy production means from a renewable energy source
- A 9% increase is granted when the housing is located in a ZUS (sensitive urban zone)
Beware: the tax reduction is calculated according to a coefficient based on the area, 2,373 euros of tax per square meter of living space, to which are added covered terraces called “varangues” up to a limit of 14 m².
There are two conditions to be met: a property intended for unfurnished rental and assigned for the main residential use of the tenant for a period of 5 years (for the open sector) or 6 years (for the intermediate sector) and a ceiling on rent and tenant income in the intermediate sector.
Example: You buy an apartment in Saint Martin for an amount of 300,000 euros with a living area of 100 m² and 20 m² of varangue. You decide to rent your new home in the open zone without any ceiling constraints.
Tax exemption base (ceiling excluding VAT as there is no VAT in Saint Martin)
2,373 euros
Tax exemption limit
100 m² + 14 m² (varangue) x 2,373 euros = 270,522 euros
Amount of tax withheld
270,522 euros x 30% = 81,157 euros
Tax reduction
16,231 euros per year for 5 years
You therefore benefit from a tax reduction of 16,231 euros this year and the following 4 years. Beware, the Girardin reduction remains framed by the overall ceiling of tax niches of 18,000 euros or 4% of the taxable income of the previous year.
Conclusion
Through this guide, we have compiled a brief summary of the main measures taken within the framework of a rental investment. As you have seen, each has its own characteristics, specific tax advantages, but also conditions that must be respected.
In fact, if you are interested in rental investment, it is best to consult a wealth management advisor because only a professional will be able to provide you with answers and solutions that match your objectives and your ability to manage risk perception.
Source: france-immo-express.eu