We present below the general rules concerning land income realized with a building located in France:
- The scope of the scheme;
- Tax regimes;
- The principles of determining the result;
- The imputation of deficits.
We present here only the most common situations and therefore we do not deal with specific deductions and special depreciation regimes, historic buildings and rural properties.
If, however, you are concerned by any of these cases, you can contact us and we will do our best to answer your question as soon as possible.
We invite you to also consult the following articles appearing on our website:
- TAX REDUCTION “DENORMANDY” ON REAL ESTATE
- NON-PROFESSIONAL FURNISHED RENTAL
- INVESTING IN REAL ESTATE IN FRANCE
- THE ESSENTIAL ELEMENTS TO UNDERSTAND “TAXE FONCIERE” AND “TAXE D’HABITATION”
I – The scope of the scheme
Income from the rental of bare buildings (rural, urban, built or not) and received by the taxpayer or another member of the tax household, is taxable in this category of income, ie:
- Owner proper. Taxpayers must declare income from buildings, whether built or not, which they receive themselves, as well as their children or dependents;
- Undivided owner, each co-owner being subject to income tax for the share corresponding to his rights in the total net income of the joint ownership;
- Usufructuary in the event of dismemberment of the right of ownership;
- Partners in real estate management companies;
- Holders of units in real estate investment funds.
Land income consists mainly of rents and ancillary income from real estate located in France and rented bare, whether or not they are built (single-family houses, apartments, garages, bare land, etc.).
On the other hand, if the owner rents furnished, the income will be taxed in the category of Industrial and Commercial Benefits (B.I.C.).
Income from shares in real estate management companies receiving rental income falls under the category of property income. These companies are required to file a 2072 declaration indicating the share accruing to each partner in the gross income and expenses of the company.
The units of real estate investment funds (F.P.I.) constitute a joint ownership of real estate assets, movable assets and cash which does not have legal personality. Unitholders of these funds are therefore taxed as if they themselves had received the income received by the fund. This taxation is limited to income distributed by the fund.
II – Tax regimes
This is the regime applicable (except option for the real regime) to taxpayers whose gross property income does not exceed € 15,000 per year and who do not rent property subject to a special tax regime. This is a simplified tax regime. The net land income is determined by applying a 30% allowance to the gross income.
The gross land income is made up of the amount of rents excluding charges actually received during the same calendar year. To this sum is added, where applicable, certain expenses charged by agreement to the lessee, certain subsidies and allowances and certain ancillary revenues.
It may be interesting to opt for the common law regime when the deductible charges represent more than 30% of the income received, this option is then irrevocable for 3 years, then renewable each year.
Gross income is determined using the same method as for “Micro-foncier” (see above).
On the other hand, the taxpayer can deduct the costs and charges incurred for the rental property, for their actual amount. He can thus deduct from the rents received, works, condominium fees, insurance premiums, loan interest, etc.
In addition, in certain cases precisely defined by law, it may deduct specific charges or depreciation allowances.
Taxation of property income
It is subject to income tax. The property result is added to other annual income and is then subject to income tax.
Land income is also subject to social security contributions (C.S.G.-C.R.D.S.). Non-residents are also subject to it as property income on their French-source property income. However, persons subject to compulsory health insurance legislation in another E.U. state, the E.E.E. or Switzerland are exempt from CSG and CRDS.
Taxpayers subject to the real regime must complete a declaration N°2044 (or 2044 SPECIALE and 2044 EB) and then report the net income on the general declaration of income N°2042.
Taxpayers who fall under the micro-foncier regime do not complete a 2044 declaration. They indicate the total amount of income received on the 2042 tax declaration. A reduction of 30%, representative of the costs, is automatically applied to determine the taxable income.
III – The determination of the net income in the real regime (urban properties)
When the income is taxable according to the real regime, the taxable net property income of urban properties is, in principle, determined by the difference between the amount of the gross income and the total charges of the building.
It is made up of the amount of gross receipts received by the owner during the year, it includes:
- The rents collected;
- The expenses falling by right to the owner and put by agreement at the expense of the tenants;
- Miscellaneous gross receipts (entrance fees, insurance indemnities, ANAH subsidies).
Below are some details about taxable revenue:
- Unpaid rents: uncashed or unpaid rents should not be included in taxable revenue when the default is due to the tenant’s default and the lessor has taken the necessary steps to obtain payment of the sums due to him;
- Security deposits: in principle, sums received from tenants as a security deposit are not taxable upon payment;
- Lease with insufficient rent: when the fixed rent is lower than the normal rental value of a building, the administration has the possibility of adjusting the declared income by increasing the price of the rent by the amount of the donation that the owner has granted to his tenant by asking him for an insufficient rent, unless the owner can demonstrate that circumstances beyond his control require him to rent the building at a low rate.
The following fees and charges are deductible for their actual amount:
- Management costs: the remuneration costs of guards and janitors, the remuneration costs, fees and commissions paid to third parties and the costs of proceedings are deductible for their actual amount, when these expenses are actually borne by the owner. Other management costs borne by owners for the administration and management of their rental properties are deductible for a fixed amount set at € 20 per room;
- Insurance premiums: all insurance premiums relating to a rented building (including coverage for the risk of unpaid rents) are deductible for their actual and justified amount;
- Repair, maintenance and improvement expenses: these expenses are those which correspond to work intended to maintain or restore a building in good condition and to allow normal use, in accordance with its intended purpose, without modifying its consistency, layout or design of the initial equipment. Improvement expenses are in principle non-deductible unless they provide a building, equipment or a new element of comfort better suited to modern living conditions, without however modifying the structure of this building. In principle, construction, reconstruction or expansion expenses are not deductible;
- Recoverable charges not recovered on departure from the tenant: these are expenses normally incumbent on tenants and paid by the lessor (costs for heating, lighting, elevator maintenance, household garbage collection tax, etc.);
- Eviction compensation and relocation costs: costs incurred by a landlord to temporarily house his tenant during work affecting the rented accommodation may be deducted from property income if carried out for the purpose of income preservation;
- Taxes: these are local taxes and mainly “Taxe foncière”. The tax on household waste included in the property tax is the responsibility of the tenant and therefore cannot be deducted from the gross income;
- Interest on loans: the interest on deductible loans is that which has been contracted for the conservation, acquisition, construction, extension, repair or improvement of the rented buildings. It is possible to deduct borrowing costs.
IV – Imputation of deficits
In principle, the land deficit can only be charged against land income for the following 10 years. However, a charge is possible against overall income when the deficits result from expenses other than loan interest up to the annual limit of € 10,700. This limit is increased to € 15,300 in the case of certain special schemes.
If the overall income is insufficient to absorb the land deficit (limited to € 10,700 or € 15,300), the excess can be charged against the overall income of subsequent years, up to and including the 6th year.
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