Furnished rentals have specific tax implications in France. The rental income from furnished properties must be declared under the Industrial and Commercial Profits (BIC) category, rather than the real estate income category as with unfurnished properties. The tax treatment depends on the type of rental activity that was conducted in the previous year. For long-term rentals, if the rental income received in 2023 does not exceed 77,700 euros, the taxpayer is automatically eligible for the simplified tax regime known as micro-BIC. There is no need to file a separate declaration; the income should simply be reported on the tax return.
Under the micro-BIC regime, the taxable rental income is determined by the tax authorities based on a flat-rate system, with a 50% deduction applied to the reported income. Taxpayers cannot claim additional deductions, even if significant expenses were incurred, such as renovations or repairs. However, only half of the rental income is subject to income tax (according to the progressive tax scale) and social security contributions (at a rate of 17.2%). This means that the tax burden is significantly reduced, regardless of the actual expenses incurred by the taxpayer.
For rental income exceeding the 77,700 euro threshold or if the taxpayer opted for the actual regime when filing the previous year’s tax return, they fall under the real tax regime. This regime allows taxpayers to deduct all actual expenses incurred, including property maintenance costs, insurance premiums, and interest on loans. Additionally, taxpayers can deduct acquisition costs and depreciate the property and furniture each year, reflecting the decrease in value over time. By utilizing these depreciation allowances, taxpayers can often reduce their taxable income to zero, resulting in no tax liability for an extended period.
However, under the real tax regime, taxpayers face more complex reporting requirements similar to those of a small business. A separate income statement must be prepared and submitted to the tax authorities before filing the annual tax return. This additional paperwork is mandatory, whether the furnished rental activity is conducted on a professional or non-professional basis. The income statement must be electronically transmitted to the tax authorities by May 18th, followed by the completion of the annual tax return.
In conclusion, the tax treatment of furnished rentals in France differs from unfurnished properties, with specific rules governing the declaration of rental income and allowable deductions. Taxpayers can benefit from a simplified tax regime (micro-BIC) for rental income below a certain threshold, or opt for the more complex real tax regime to claim actual expenses and depreciation allowances. It is essential for taxpayers to understand the tax implications of furnished rentals and comply with the reporting requirements to avoid penalties and ensure tax compliance.
