In addition to low borrowing rates many devices are available to real estate solution investors to reduce their taxes through real estate tax exemption . They were created to encourage real estate investment while France is unable to build the housing that the growing population needs.
The capping of tax loopholes at €10,000 per household, however, limits these tax reductions. It is therefore important to choose your real estate tax exemption tool carefully.
Here is a list of these real estate solution tax exemption schemes in 2021, their conditions of access, the tax advantages they provide and the risks to avoid.
The tax advantages of the Pinel law
By committing to renting your new property for a minimum period of 6, 9 or 12 years , you can recover 12%, 18% or 21% of the value of the property over the rental period (i.e. 2% per year up to 9 years and an additional 1% per year up to 12 years). The value of the property taken into account for the calculation of this tax exemption is capped at €300,000 .
Example: For a property worth €150,000, you benefit from €3,000 in tax savings per year for 9 years, then €1,500.
The conditions for benefiting from the Pinel law
To benefit from the Pinel law, the following conditions must be met:
the property must be new or recently renovated
it must be located in a specific area
the rents and the resources of the tenants are capped (see our sheet on the Pinel for the values);
the lease must be for a principal residence, and the rental cannot be furnished.
The Pinel law is subject to the capping of tax loopholes, and you cannot deduct more than 10,000 euros per year.
Risks related to the Pinel law in 2019
A successful investment with the Pinel law implies that you manage to rent your accommodation . There cannot be a vacancy longer than 12 months, under the risk of losing the tax advantages of the Pinel law. It is therefore necessary to choose a region with high rental demand, taking into account in particular the zoning which is regularly updated.
Also remember to make precise calculations before investing, including the amount of rent capped, to check the consistency of your financial package.
Finally, check if you want to take out unpaid rent guarantee that the income/rent ratio imposed by the Pinel ceilings is consistent with the ratio requested by insurance companies, generally x3.
The tax advantages of the Pinel Outre-Mer law
The Pinel Outre-Mer law is very similar to the Pinel law, but with higher tax exemption ceilings .
By committing to renting your new property for a minimum period of 6, 9 or 12 years, you can recover 23%, 29% or 32% of the value of the property over the rental period, i.e. 11% more than on the classic Pinel . The value of the property taken into account for the calculation of this tax exemption is always capped at €300,000
Example :
You invest in a property for a value of €150,000. You can benefit from:
€34,500 reduction, i.e. €5,750 per year for 6 years
€43,500 reduction, i.e. €4,833 per year for 9 years
€48,000 reduction i.e. €4,000 per year for 12 years
Investments under the Pinel Outre-Mer law are included in the calculation of the cap on tax loopholes, with a specific cap raised to €18,000 .
The conditions for benefiting from the Pinel Outre-Mer law
To benefit from the Pinel law, the following conditions must be met:
the property must be new or recently renovated, and meet specific energy standards;
it must be located in the DOM-TOM;
rents and tenant resources are capped;
the lease must be for a principal residence, and the rental cannot be furnished.
The risks associated with the Pinel Outre-Mer law
As with the Pinel law, the Pinel Outre-Mer law requires that the accommodation be rented. It is therefore important to choose areas of high rental tension.
The main problem with the Pinel Outre-Mer law is that you are usually at a distance. It is therefore necessary to choose promoters with a proven reputation before embarking on this investment.
To find out more, consult the article of the Tax Code specifying the additional deductions in Overseas France .
Note that like Pinel in mainland France, Pinel Outre-Mer will be disconnected with tax reductions which will decrease until 2024.
The tax advantages of the Censi Bouvard law
This device concerns the furnished rental of residences with services (student, EHPAD, apart-hotel). It gives you the right to a tax reduction of 11% of the value of the property (value capped at €300,000), over a period of 9 to 12 years.
You also benefit from the reimbursement of VAT on the amount of the investment, and you have the possibility of combining it with other tax exemption schemes.
The Censi Bouvard law is subject to the capping of tax loopholes. You cannot therefore deduct more than 10,000 euros per year.
Other advantages of the Censi Bouvard law
The management of your property is entrusted to an operator, which frees you from any logistical or administrative worries. The operator rents the accommodation directly to you so you no longer have any risk of non-payment or rental vacancy (in theory, see the last section).
The conditions to benefit from the Censi Bouvard law in 2019
To benefit from the Censi Bouvard system, the following conditions must be met:
the property must be furnished;
it must belong to a certain category of eligible buildings: residence for students, for seniors, EHPAD or tourist residence;
you must sign a commercial lease for a period of 9 to 12 years with the operator of the residence.
As you can see, there are no rent, resource or zoning conditions, which makes this device attractive compared to the Pinel device, for example. The risks associated with the device are nevertheless not non-existent.
The risks associated with the Censi Bouvard law
The Censi Bouvard device allows you to benefit from tax reductions, without having to worry about the constraints of traditional real estate (management of the property and tenants, etc.). On the other hand, you must be careful to choose the operator of your property, who is the guarantor of your income throughout the duration of the commercial lease.
As we will see in the next part, the real LMNP is more advantageous on this point of resale
The tax advantages of LMNP status
When you rent furnished accommodation, you are by default considered to be a Non-Professional Furnished Lessor or LMNP.
The LMNP regime allows you to declare your rental income for tax purposes in two ways:
the micro-Bic scheme where you charge a flat rate of 50% of charges on your rents
the actual regime where you declare your expenses actually paid, adding in addition depreciation
In this second so-called “real” regime, the accounting depreciation that will be added to the actual expenses will allow you to fictitiously reduce your taxable rent. The reduction is substantial and in certain areas with low rental yield such as Paris you will almost be able to cancel your taxes (more details on depreciation on our complete sheet ).
Other Benefits of Actual LMNP Status
This status is obtained without any geographical condition or zoning, on any property rented furnished. You have no means test on tenants or rent. You can rent several properties under this regime.
This total absence of constraints is a huge advantage compared to the zoning constraints of Pinel, or the obligation to rent in a serviced residence for Censi-Bouvard.
Finally concerning the resale, you have no constraint of duration of detention.
The conditions for benefiting from real LMNP status
The actual plan must be chosen no later than February 1 of the current year.
The important thing is not to fall into the LMP (Professional Furnished Rental Company) regime and therefore respect at least one of these two conditions:
annual income from furnished rentals is less than €23,000
Annual income from furnished rentals is lower than other household income
Risks related to LMNP status
To be honest, it is the tax system that we recommend because there are no obvious risks on the assembly, given the absence of constraints. Remember to invest in an area and for a type of property where furnished rentals meet a minimum of demand.
