Borloo Scheme: Investment in Affordable Real Estate
The Borloo old scheme, also known as the Borloo popular scheme, is a tax measure aimed at encouraging investment in old rental real estate while offering housing at moderate rents. In exchange for renting out affordable housing, investors can benefit from attractive tax deductions. This article explores the eligibility conditions for the Borloo old scheme, the tax benefits it offers, and strategies to optimize this investment.
What is the Borloo old scheme?
The Borloo old scheme was established in 2003 as part of the Finance Act, under the impetus of Jean-Louis Borloo, then Minister of Social Cohesion. It is aimed at owners of old properties who commit to renting out their properties to low-income households at rents below market rates. This scheme aims to facilitate access to housing for middle-income households while renovating the old real estate stock.
Eligibility conditions
To benefit from the Borloo old scheme, several conditions must be met:
- Property type: The scheme applies to old properties located in areas defined by law, generally areas with high rental demand.
- Capped rents: The owner must commit to renting out the property at a capped rent, lower than market rates, according to geographical areas (A, B1, B2, C).
- Eligible tenants: Tenants must meet income conditions, with income ceilings defined based on household composition and geographical area.
- Rental duration: The property must be rented out for a minimum of 6 or 9 years, with a possibility of extension up to 12 years to maximize tax benefits.
Tax benefits of the Borloo old scheme
The Borloo old scheme offers several interesting tax benefits:
- Specific deduction: Owners can benefit from a specific deduction of 30% on gross rental income for properties rented at intermediate rents. This deduction can reach 45% if the property is located in a rural revitalization zone (ZRR).
- Tax reduction: For properties covered by an Anah (National Housing Agency) agreement, a tax reduction of 30% to 70% can be applied to renovation works, depending on the nature of the works and the property's location.
- Accumulation of benefits: The Borloo old scheme can be combined with other schemes, such as the Pinel scheme for rehabilitated old properties, thus maximizing the tax reduction.
Strategies to maximize investment under the Borloo old scheme
To make the most of the Borloo old scheme, it is recommended to:
- Choose the location wisely: Investing in areas with high rental demand, but where real estate prices remain affordable, helps maximize rental yield while respecting rent ceilings.
- Optimize renovation works: Works eligible for tax reduction may include energy improvement, compliance with standards, and complete renovation of the property. It is advisable to plan these works to maximize tax benefits.
- Comply with reporting obligations: Owners must comply with reporting obligations to Anah and the tax authorities to benefit from deductions and tax reductions.
Real-life examples
Let's assume an investor acquires an old apartment for €150,000 in a B1 area, renovates it for €30,000, and rents it out for €600 per month. Thanks to the Borloo old scheme, they can benefit from a specific deduction of 30% on gross rental income, as well as a tax reduction on the works, significantly reducing tax on their rental income.
Laws governing the Borloo old scheme
The Borloo old scheme is governed by the General Tax Code, particularly articles 31 and 199 novovicies. These texts specify the eligibility conditions, rent and income ceilings, as well as the deduction and tax reduction modalities applicable. It is essential to comply with these rules to benefit from tax advantages.
Conclusion
The Borloo old scheme is an interesting opportunity for investors looking to invest in old rental real estate while benefiting from significant tax advantages. By choosing a property in an eligible area, respecting rent ceilings, and optimizing renovation works, it is possible to make a profitable and socially responsible investment. As with any real estate investment, it is advisable to consult a tax expert to maximize benefits and ensure compliance with legal obligations.
