Furnished rentals are always subject to the BIC tax regime for industrial and commercial profits.
This regime may apply to both professional and non-professional rentals. From a practical point of view, non-professional furnished rentals can very often be found in the context of investments by individuals, frequently combined with the regime for para-hotel activities. This scheme is that used for investments in student residences, retirement homes, tourist residences and others.
It allows investors:
- first, to deduct VAT in respect of the acquisition (see hyperlink: Acquisition / Disposal > Real estate asset > VAT); and
- second, to deduct from tax depreciation on the building under the furnished rentals regime (see hyperlink: Rentals > Profits tax > Main deductible charges > write-down).
Regarding furnished rentals, it is necessary to distinguish between professional furnished rentals (LMP) and non-professional furnished rentals (LMNP), which has 2 impacts from a tax standpoint:
- Carry-forward of losses:
- - Professional furnished rentals (LMP) ð charged against total income
- - Non-professional furnished rentals (LMNP) ð only charged against non-professional industrial and commercial profits
- Calculation of capital gains on disposals:
- - Professional furnished rentals (LMP) ð regime for industrial and commercial profits
- - Non-professional furnished rentals ð regime for capital gains on real estate of individuals
focus // capital gains under the professional regime for industrial and commercial profits ("régime bic professionnel", lmp)
Capital gains under the professional regime for industrial and commercial profits: if the real estate asset has been held for more than 2 years, the capital gain is in the short-term within the limit of the amount of the depreciation. This capital gain is then liable for income tax on a progressive scale in the same way as income from industrial and commercial profits. It is often possible to spread it over 3 years.
For the remainder, the capital gain is categorised as long-term. Capital gain tax is due at a proportional rate of 16% plus social security charges of 17.2% (and the contribution on high incomes where appropriate).
Provided certain conditions are met, notably regarding the time the activity is carried on, capital gains may benefit from an exemption on the basis of revenues if turnover is less than €90,000 net of tax.
When turnover net of tax is between €90,000 and €126,000, exemption will be partial.
For a taxpayer to be regarded as carrying on a professional industrial or commercial activity (LMP), he or she must:
- be listed on the Register of Commerce and Companies as a provider of furnished rentals;
- have a turnover of more than €23,000; and
- the earned net income of the tax household shall be less than the turnover generated by furnished rental activity.
These various conditions must be cumulatively met.
There is also the preferential “Censier-Bouvard” system for furnished rentals, not considered here.