Among the many possible rental investment strategies, furnished rental under the real tax regime often stands out as a highly advantageous tax niche. While it requires more detailed management, this regime combines the best tax benefits of both individual and business structures. Let’s break it down.
When purchasing a property or immediately afterward, an investor must answer two fundamental
questions:
To decide between renting unfurnished or furnished, two factors must be considered: taxation and market demand.
From a tax perspective, the income generated by unfurnished and furnished rentals is classified differently.
In both cases, the final taxable income from rental activity is added to other sources of income (such as salaries) and is subject to the taxpayer’s marginal tax rate, plus social contributions (17.2% as of October 2022).
However, the method of calculating taxable income differs between unfurnished and furnished rental:
This means that under the micro-tax regimes, with no complex calculations required:
For properties classified as “Tourist Residences,” the tax deduction increases to 71%.
Under the real tax regime, furnished rentals have the advantage. The real tax regime allows for more deductible expenses, including property depreciation, which has a significant tax impact.
If a rental property requires significant renovation work (costing tens of thousands of euros), the unfurnished rental tax regime may be more attractive. Renovation costs create a tax deficit over multiple years, which can be deducted from salary income (up to €10,700 per year). This is known as the Déficit Foncier and is a specific case to consider.
While furnished rentals are tax-efficient, they come with specific constraints:
The property must be suitable for furnished rental. A student studio in La Rochelle is easy to rent out furnished, whereas a large rural house might take longer to find a tenant, leading to costly vacancy periods.
Furnished rentals require full and updated equipment to attract tenants, who typically stay for 1 to 3 years—shorter than tenants who bring their own furniture.
Additionally, a detailed accounting system is required under the real tax regime. The rental activity must also be declared to the Commercial Court registry, a process that can be handled independently or by professionals like Qlower, to avoid costly mistakes.
The Micro-BIC regime eliminates the need for accounting and calculations, applying a 50% tax deduction to rental income (including charges). The remaining 50% is taxed at the marginal income tax rate (0%, 11%, 30%, 41%, or 45%) plus social contributions.
If total income is below €10,225 per year (as of October 2022), choosing the Micro-BIC regime is a simple and tax-efficient choice.
For households not subject to income tax, it is essential to estimate deductible expenses and ensure they exceed the 50% deduction offered by the Micro-BIC regime.
In furnished rentals, almost all expenses are deductible, including:
In most cases, these expenses exceed 50% of rental income in the early years. If expenses are low, the Micro-BIC regime may still be beneficial, but this situation is ra
Furnished rental (LMNP) is considered a small business and must be registered with INSEE when declaring rental activity. This business status allows access to business accounting rules, including depreciation.
Depreciation allows property owners to deduct wear and tear as an expense. The rental property, considered a business asset, depreciates over approximately 50 years, generating a deductible expense that often offsets rental income.
This means many LMNP investors pay zero tax on rental income for 5, 10, or even 15 years!
Qlower’s LMNP tax simulator can quickly calculate your rental income and tax liability, showing how depreciation can bring tax liability to zero.
Depreciation gradually decreases over time until it no longer offsets rental income completely. At this point, new renovations or purchases (like furniture over €600) can be depreciated to create additional tax deductions.
Thanks to depreciation, most furnished rental investors pay no tax on rental income. However, deficits cannot be offset against other income sources (e.g., salary income).
Furnished rental under the real tax regime benefits from both business and personal tax advantages.
Capital gains tax is based on the difference between the purchase price and the sale price, minus renovations. Depreciation is NOT deducted from the purchase price.
By contrast, in SCIs and LMP (Professional Furnished Rental), depreciation is deducted from the purchase price, significantly increasing capital gains tax liability.
The LMP regime (Professional Furnished Rental) applies when:
For example, a couple earning €60,000 in salaries and €50,000 in rental income remains LMNP.
Under LMP, three major changes occur:
Switching from LMNP to LMP has significant consequences, particularly for capital gains and social contributions, so investors should plan carefully.
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