The taxation of a rental investment is a labyrinth in which it is advisable to know how to find one's way in order to ensure the profitability of one's investments. Which regime to follow and which options to choose for the taxation of your rental income? The answer varies according to your property and your rental strategy.
Taxation of a rental investment: the main schemes
Rental investment generates rental income thanks to the rents received, which are not exempt from government scrutiny and taxation. The challenge is not to make a mistake among all the possible schemes and arrangements. However, a good understanding of real estate taxation allows you to control and boost your profitability, or even to tax-free your income, depending on the system, or even to optimize your transmission with the dismemberment of property.
The micro landlord
The micro landlord system corresponds to the micro bic system. It is intended for investors with modest rental income, since it only concerns annual property income below 15,000 euros. To compensate for expenses related to operating costs, a flat-rate deduction of 30% of income is granted.
The micro landlord is therefore of interest to all those who rent empty, without major work and maintenance expenses.
- It is of interest to individuals who want to simplify their lives, since this system is simplified in terms of tax returns.
- The micro property regime allows a tax reduction, as soon as the expenses of a housing are not very important, because that they amount to 5 or 30 %, the fixed abatement remains the same one.
- As soon as the rental investment generates expenses, the advantages of this system must be compared to those of the real system that we will see next. Ill-adapted to certain situations, the micro-property regime can literally plummet the profitability of a rental investment. Many investors forget, for example, that the expenses related to their real estate loan, such as the loan insurance or the disability-death guarantee, are part of the deductible expenses.
- This system is not as simple as it seems, because it forces to keep all the receipts of expenses, which can be claimed by the tax authorities.
The real regime
Unlike the microbic regime, the real regime provides for a deduction of the expenses actually incurred, which implies that they are (almost) all deductible. The benefits of this regime are very tangible when you make a rental investment on credit. Many expenses, including those related to loan interest and insurance are deductible. Add to this: maintenance and work costs, property tax and management fees and co-ownership charges. In total, your taxation can be erased, because another fiscal gift is added to it: depreciation.
Each year, in fact, the real regime allows you to deduct from your real estate income, a part of the value of your property, corresponding to a loss of value of these properties over time. This tax reduction splits the value of a property over the number of years it has been financed, with calculations made by "components" (different depreciation rates apply to different parts of the property).
- The real regime allows to ensure the net profitability of many rental investments thanks to the deduction of expenses and depreciation. It is of interest to investors who rent empty in search of good deals, especially with the creation of a land deficit. This mechanism provides for important deductions of expenses, which will be carried out in the form of renovation work, and which will cancel the total taxable rental income. Better still, this deficit reduces the overall taxation of a household, since the difference between the total amount of expenses and the amount of rent received is deductible from income tax, up to 10,700 euros per year. The rest of the deficit is not lost, since it can be carried forward for the next 10 years.
- When you resell a rental investment made under the real estate tax system, it is still subject to the dreaded capital gains tax on real estate: 33% of the value of the capital gain realized, plus 17.2% in social security contributions. Even if this tax is gradually reduced according to the number of years the property is held, you will have to wait at least 30 years if you want to be 100% exempt! Worse, this tax includes in its calculation the amount of depreciation granted.
- The imputation of a land deficit on your taxable income commits you for 3 years. If you decide to resell the property before the end of this period, you are liable to the tax authorities for the tax reduction obtained.
- The complexity of the accounting under the real system makes the services of the chartered accountant mandatory.
The investment in SCI
A non-trading property company allows you to invest in rental property by pooling your resources with other investors. A SCI is not a tax system, but a legal framework, which allows to invest.
Two regimes are possible: IR (income tax), which taxes the partners individually on their property income, or IS (corporate tax), which taxes the company and not the partners, thus allowing them not to increase their taxable income. The tax rate of a SCI under IS does not exceed 15%, as long as its rental income does not exceed 7.63 million euros (reaching 33.1% beyond 300,000 euros).
- The SCI, especially with the IS, allows to acquire real estate while benefiting from a very soft tax regime. Just like the real estate regime, it allows to deduct expenses and charges from rental income and also benefits from depreciation.
- The SCi combines certain other advantages, particularly in terms of transmission. It reduces the disadvantages of undivided ownership, as company shares are easier to share than property. The tax exemptions on a transmitted capital are still valid in 2021. They amount to 100,000 euros per donor and per heir, eliminating the inheritance fees for the latter.
- Investing in a non-trading property company requires the creation of a company, which implies notary or chartered accountant fees, which are heavy at the beginning. Its accounting management is also complex.
- The SCI is more a patrimonial tool which helps to value and transmit real estate. Resale (see our article on capital gains in SCI) is not recommended, except in the case of a company subject to income tax. The tax benefits of the IS are lost due to the heavy tax on real estate capital gains that applies, i.e. 33.3% for an amount greater than €38,120, followed by the taxation of dividends. This tax adds to the taxable income of each partner.
Rental income and tax measures
Knowing the different tax regimes will therefore allow you to make some simulations at the beginning, notably with the calculation of charges, to better define your choices. But the system is not everything, because the French government also reserves tax niches for investors, i.e. systems that allow them to combine rental investment with tax reductions.
The status of "loueur en meublé non-professionnel lmnp" is one of the most advantageous tax niches for rental investment. The rental income is taxed as industrial and commercial profits, and not as property income. The only requirement is that this status can only be applied to furnished rentals. The LMNP is a status, not a regime. It gives the choice between the microbic regime or the real regime. If the latter is chosen, it gives the right to all the deductions of charges that we have seen, as well as the land deficit. The furnished rental is accompanied by a more important equipment of the housing, the tax reductions are likely to erase the taxation.
- To know: a land deficit realized under the LMNP status in furnished rental does not fall within the 10,000 euro ceiling still provided for tax niches in 2021.
The Censi Bouvard system
It also allows you to take advantage of the benefits of furnished rental by making a rental investment in a residence service (EPHAD rooms or student residences). In addition, there is a tax reduction of 11% of the price of the property each year, up to a limit of 300 000 euros.
The Pinel law
This scheme will be maintained in 2021, to be gradually reduced in 2023 and 2024. It is only available to empty tenants who rent their property as their main residence and to new housing acquired in apartment buildings in priority neighborhoods of the city's policy(QPV). The tax benefits granted are proportional to the length of the rental period. For 2021, count on 12% calculated on the price of the property for a period of 6 years, 18% for 9 years and 21% for 12.
Choosing the right tax regime is a matter for a specialist. To limit the risks and realize profitable projects, the turnkey rental investment solution, as Ever Invest proposes, is an excellent alternative. The thorny question of profitability is studied for you upstream, and by professionals who are experts in the field.