You’ve decided to rent out your apartment furnished, but what tax regime applies to this type of income? In France, furnished rentals are subject to income tax under the category of industrial and commercial profits (BIC).
The non-professional furnished rental (LMNP) status applies to all types of furnished rentals, including classic furnished rentals (furnished residential leases), seasonal rentals, classified tourist rentals, and guest rooms. There are two tax regimes available for furnished rentals under the BIC regime: the micro BIC regime or the real BIC regime. Understanding these two regimes is important to make an informed choice.
1 – THE MICRO BIC REGIME
The micro-BIC regime offers simplified taxation, with a flat-rate allowance of 50% applied to the gross furnished income before commissions. Gross income includes rents and expenses received for furnished properties located in France during the year.
After deduction, income is subject to income tax and social security contributions (CSG, CRDS, etc.). This regime is applied by default if your furnished rental income is below the ceiling of €70,000.
Note: For a furnished rental of classified tourism and bed and breakfast, the applicable allowance is 71% with a threshold of €170,000.
At the declarative level, you only need to report the gross amount of rentals received for the year in your form 2042C. The administration will directly apply the 50% abatement.
2 – THE REAL BIC REGIMEN
Another possibility is to opt for a declaration to the real regime or be subject to it if you are above the micro BIC thresholds.
It allows you to deduct all expenses solely incurred for the acquisition or operation of the property, such as notary fees, loan interest, maintenance work, insurance, but also the accounting depreciation of the property and movable property. Depreciation is an accounting concept consisting of allocating each year a fraction of the value of an asset used for a lasting purpose to take into account its loss of value.
This additional burden can lead to a considerable reduction in your taxes on rental income.
On the declarative side, you will have to submit a tax package but also report the result in your income tax return.
Note: The real regime can be chosen voluntarily, even if your furnished income is below the ceiling of €70,000. The actual profit regime must apply if your income exceeds this ceiling.
Unsurprisingly, the real BIC regime involves the intervention of a chartered accountant to keep the accounts, properly depreciate the property, furniture furnishing, otherwise, you expose yourself to a tax adjustment in case of an error.
So, which regime to select? Personalised simulations will allow you to make the best choice from a tax point of view. Contact our team for more information.
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Briefing note written by Maud MESTRE – Tax Manager in RUFF & ASSOCIÉS