Property income: What are the deductible expenses?

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Property income: What are the deductible expenses?

Whether it's an apartment, a studio, or an office space, renting out your property entails paying taxes imposed on the income that you earn. But as with the standard income tax, this tax comes with various regimes and even deductible expenses too.

Which tax regime to choose for your property income?

Before you pay your rental income taxes in France, you need to know the different tax regimes first. They vary depending on the kind of property you're leasing out, how much your earn in rent, and more. 
  1. For Empty Rentals

The Micro-Land Tenure System
This concerns all owners whose property income is less than €15,000.00 per year. It is possible to automatically benefit from a 30% abatement without deduction. 

It's important to note that the procedures are integrated directly into the income tax return.

The Real Regime 
This regime allows and authorizes the deduction of many expenses made directly on the declaration of salaries (it will reduce the tax base), including:
  • Local Taxes (Property Tax).
  • Expenses related to Rental Management (i.e. guarding, mandate entrusted to an agency, etc.).
  • Expenses related to maintenance, repairs, and renovations.
  • Provisions for rental charges due by the lessor (i.e. water, household waste tax, electricity, etc.).
  • Costs related to the purchase of the property and loan interest.
  • Insurance  (i.e. non-occupant homeowner insurance).
  • Generalized Social Contribution (CSG). 

If the amount of charges is higher than your property income, it will result in a property deficit. The property deficit can be deducted from a minimum of €10,700.00 and a maximum of €15,300.00 in some cases.
  1. For Furnished Rentals

The Micro-BIC Regime
This scheme does not allow expenses to be deducted. Instead, possible reduction of 50% of gross income (including expenses) or 71% in the case of furnished tourist accommodations.

The income resulting from the furnished rental that you own or lease out (as well as from a potential sublease) is subject to income tax under the category of Industrial and Commercial Profits (BIC).

This concerns all owners whose property income is less than €72,600.00 per year.

Don’t forget to indicate the amount of revenue collected during the year on the general tax return (Form n°2042 C PRO) in the Industrial and Commercial Profits section.

The Real Regime
This regime allows and authorizes the deduction of many expenses. However, expenses related to renovation work are not considered deductible expenses. Similarly, the cost of purchasing the property and the sums paid for the furniture may be subject to depreciation. 

This regime requires important documents that serve as proof. It's vital that you keep invoices, set up accounts (register of income and expenditure), and maintain statements at the end of the activity (i.e. balance sheet, income statement, depreciation schedule).
  • Local Taxes (i.e. property tax, CFE, etc.).
  • Expenses related to the management of the property (real estate mandates).
  • Expenses related to maintenance and repairs.
  • Loan interest.
  • Insurance Premiums (i.e. unpaid rent guarantee)

How to declare your property income?

During the tax return, you must fill up Cerfa Form No. 2042
Regardless of your chosen tax regime, this is mandatory for every owner renting out their property in France. 

Moreover, here are the additional forms that you also need to fill up depending on the situation:
Cerfa Form n° 2044 if you opt for the Real Tax Regime;
Declaration No. 2044 -SPE in the case of investment in an incentive or tax deduction program.

What is the list of deductible expenses?

As with any other tax, your property income tax comes with various deductible expenses, They include:
  1. Expenses incurred on Behalf of The Tenants by way of Maintenance and Repairs
  • The owner/landlord can deduct the amount of expenses paid on behalf of the tenants that haven't been reimbursed. This deduction applies when the tenant does not reimburse the owner/landlord for all recoverable expenses due. 
  1. Work Carried Out on The Propert, which includes:
  • Improvement works.
  • Repair.
  • Upgrading work.
  1. Maintenance of The Property, such as:
  • Repairs at The Expense of The Tenant
  • Repairs at The Expense of The owner/Landlord
  1. Provisions for condominium fees
  • In the case of a condominium property, it's possible to deduct provisions for expenses paid the previous year. 
  • Insurance premiums
  1. All Insurance Premiums can be deducted in full (i.e. unpaid rent guarantee contract, non-occupant landlord, etc.).
  2. Housing Management and Administration fees
  • Remuneration of The Caretaker.
  • Management fees.
  • Fees of the Syndic of Co-Ownership.
  • Procedural costs Paid for The Settlement of Disputes regarding the Property
  1. Other Taxes such as:
  • Property Tax.
  • Special Equipment Tax.
  • Contributions on Rental Income.
  • Annual Tax on Parking Spaces
  1. Mortgage/Loan Interest
  • If the owner/landlord got a mortgage to help finance the rental investment or carry out work, they can deduct the loan interest from the credit, the potential costs of the constitution file, and mortgage registrations.
  1. A Flat-Rate Deduction
  • In some rental investment situations, some owners/landlords can deduct a share of the amount of rent.
Ce qu’il faut retenir :
  • Property Income Tax is imposed on what you earn from renting out your property in France. 
  • Some of the deductible expenses from this tax include:
  • Repair and maintenance costs
  • Work carried out on the property
  • Provisions for condominium fees
  • Insurance premiums
  • Management fees
  • Taxes paid by the owner
  • Loan interest
  • Flat-rate deduction
  • Property Income Tax can be subject to two regimes:
  • The Real regime deducts the expenses assumed with their actual amount to generate the property deficit.
  • The Micro-BIC regime takes advantage of a flat-rate allowance of 30% on the rental income you earn.

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