You've just bought a house or apartment with a view to renting it out. But this investment has generated costs (loans, renovation work, etc.) that are higher than the rental income. Don't panic: you're generating a "déficit foncier" which will help you reduce your tax bill.
It all depends on how you declare your rental income
Landlords who rent out unfurnished premises are required to declare their rental income as "revenu foncier". It doesn't matter whether the property is a dwelling and its outbuildings (parking space, etc.), an office, a shop, a factory or even land. However, there are two coexisting tax regimes:
- the micro-foncier system, if rental income is less than €15,000 a year. In this case, a flat-rate deduction of 30% is automatically applied to rental income, regardless of the amount of your expenses. You don't have to justify anything, and you're only taxed on 70% of your rental income. However, it will not be possible to create a property deficit;
- the "régime réel" (real estate tax regime) applies when the taxpayer generates more than €15,000 in gross annual rental income. Under this tax regime, a property deficit can be created, allowing certain rental expenses to be deducted if they exceed the amount of rent received in the course of the year. This may be relevant, for example, in the case of renovation work. These expenses are then deducted from taxable income up to a limit of €10,700.
Only certain expenses are deductible
For example, work. But not all. Only two categories are considered by the tax authorities: routine maintenance and repairs (heating, plumbing, etc.) designed to make the property habitable in "normal" conditions, and improvements that add comfort or modernity to the property (fittedkitchen, etc.). On the other hand, construction, reconstruction or extension work cannot be deducted from property income.
Borrowing interest is the second major item on your income tax bill. You can deduct interest paid during the year from your rental income if it relates to a loan taken out to buy, build, rebuild, extend, maintain or improve a rental property. In addition to the interest itself, you can deduct the "ancillary" costs associated with the loan (application fees, insurance, commissions and fees charged by the banker or broker, etc.).
Also eligible are property management and administration costs (remuneration of janitors and concierges, legal costs incurred in settling disputes with a tenant, etc.).certain taxes not recoverable from the tenant, notably property tax.
Important: you must keep the property unfurnished until at least December 31 of the 3rd year following this deduction. If you don't, beware of a tax reassessment that could jeopardize the benefits obtained.
Marie-Christine Ménoire