In France, landlords renting furnished properties fall under the category of Industrial and Commercial Profits (BIC). Two tax regimes apply to these taxpayers: the Micro-BIC regime and the Real-BIC regime. In some cases, switching from one to the other can be beneficial for the investor, particularly from a tax perspective.
The Micro-BIC regime is the tax system most commonly used by landlords renting furnished properties. It applies by default when the annual rent collected by the landlord is less than €72,600. However, the landlord can opt for the Real-BIC regime, which will be explained further.
Determining taxable income under the Micro-BIC regime is straightforward: a flat-rate deduction of 50% (analogous to deductible expenses in the real regime) is applied to the annual rent collected.
To simplify, the calculation is as follows:
Taxable BIC = 50% of annual rent collected
The remainder is taxed according to the Marginal Tax Rate (TMI) and is also subject to CSG/CRDS contributions (currently 17.2%).
The primary advantage of this regime is its simplicity: applying the deduction avoids the need to calculate actual expenses, which can be tedious, and reporting income is reduced to entering a single amount in the general tax return.
The Real-BIC regime is mandatory when the annual rent collected exceeds €72,600 and is optional when the amount is lower.
Determining taxable income under the Real-BIC regime is slightly more complex.
To simplify, the calculation is as follows:
Taxable BIC = Gross rent – (actual expenses + depreciation)
Depreciation accounting is relatively complex. In accounting terms, depreciation is the recognition of an asset’s loss of value and is deducted from income in calculating taxable profit.
Without going into detail (the complexity arises quickly as there is no standard allocation, hence the need for a professional accountant or an assistant like Qlower), the value of a furnished rental property is “broken down” into various components: land, structure (main construction), façade and roofing, fittings, and equipment.
For instance:
After identifying components, depreciation periods are applied:
On average, 80% of the property’s value can be depreciated over 25 years.
Furniture and equipment (including replacements) are typically depreciated over 5 to 7 years.
For example:
If a property is valued at €200,000, depreciation could amount to €6,500 per year for 25 years. If the furniture is valued at €10,000, additional depreciation of €2,000 could be applied for five years.
This amount, combined with actual expenses, is used to calculate taxable BIC, which is added to other income categories (salaries, property income, etc.) to determine the global taxable income.
Depreciation represents a “non-cash” expense, reducing taxable income significantly or even to zero, generating considerable tax savings.
The question only arises if the previous year’s rental income was less than €72,600. Above this threshold, the Real-BIC regime is mandatory.
The analysis is often less complicated than it seems, and in most cases, investors benefit from opting for the Real-BIC regime. It is common to find that taxable income drops to zero! The resulting tax savings can be substantial.
However, note that the Real-BIC regime involves more complex accounting, usually requiring a professional’s assistance. This additional cost must be considered when evaluating the advantages of both options. If the difference between Micro-BIC and Real-BIC is minimal, switching to Real-BIC could be unnecessarily expensive and complex.
Many landlords default to the Micro-BIC regime without considering the advantages of the Real-BIC regime. Experience shows that a significant number of investors would benefit from opting for the Real-BIC regime, achieving substantial tax savings. Qlower provides clients with expert advice to better understand the implications and make informed decisions.
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