Denormandie Scheme: Rehabilitation of Old Real Estate
The Denormandie scheme, introduced in 2019, is a tax measure aimed at encouraging the rehabilitation of old housing located in certain geographical areas. In exchange for an investment in renovation works, investors can benefit from a tax reduction proportional to the duration of the rental of the renovated property. This article explores the eligibility conditions, tax benefits, and strategies to make the most of the Denormandie scheme.
What is the Denormandie Scheme?
The Denormandie scheme follows on from the Pinel scheme, but is specifically dedicated to the rehabilitation of old housing in the city centers of certain municipalities. It applies to investments made between January 1, 2019, and December 31, 2022. To benefit from the tax reduction, renovation works must represent at least 25% of the total cost of the operation (purchase price + works).
Eligibility Conditions
To benefit from the Denormandie scheme, several conditions must be met:
- The real estate property: The housing must be old and located in an eligible municipality, typically a municipality that has signed a territorial revitalization agreement (Action Cœur de Ville) or is part of the list set by decree.
- Nature of the works: The works must represent at least 25% of the total cost of the operation. They can include renovation, modernization, compliance with standards, or the development of additional living space.
- Rental commitment: The investor must commit to renting the property unfurnished as the main residence for a minimum period of 6, 9, or 12 years.
- Rental and income ceilings: As with the Pinel scheme, the rent and the tenants' income are capped according to the geographical area where the housing is located.
Tax Benefits of the Denormandie Scheme
The Denormandie scheme allows for a tax reduction proportional to the rental commitment duration:
- 6 years: Tax reduction of 12% of the total cost of the operation (purchase + works).
- 9 years: Tax reduction of 18% of the total cost.
- 12 years: Tax reduction of 21% of the total cost.
For example, for an investment of €150,000 (including €37,500 in works) in an old property, the investor can benefit from a tax reduction of €18,000 over 6 years, €27,000 over 9 years, or €31,500 over 12 years.
Strategies to Maximize Investment under Denormandie
To maximize the benefits of the Denormandie scheme, it is recommended to:
- Choose the municipality wisely: Favor municipalities in full development or benefiting from revitalization projects to increase rental value and potential resale value.
- Optimize the works: Invest in works that significantly increase the property value, while respecting the eligibility criteria of the scheme.
- Adapt the rent to the local market: Set a rent that complies with the ceilings while remaining competitive in the local rental market.
Real Examples
Let's suppose an investor buys an old building in a medium-sized city for €120,000 and invests €40,000 in renovation works. By committing to rent the property for 9 years, they can benefit from a tax reduction of €28,800, or €3,200 per year. With a rent of €500 per month, the gross rental yield would be 5%, plus the tax advantage.
Laws Encapsulating the Denormandie Scheme
The Denormandie scheme is regulated by the General Tax Code, in particular article 199 novovicies. The laws specify the eligibility conditions, applicable ceilings, and the calculation methods for the tax reduction. It is essential to comply with these conditions to benefit from the tax advantage.
Conclusion
The Denormandie scheme is an excellent opportunity for investors wishing to rehabilitate old housing while benefiting from significant tax advantages. By judiciously choosing the location of the property, optimizing renovation works, and complying with eligibility conditions, it is possible to make a profitable investment. As with any real estate investment, it is recommended to consult an expert to ensure the viability of the project and maximize tax advantages.
