Furnished Rental: Tax Benefits and Obligations

Furnished rental is a form of real estate rental that involves providing tenants with a fully equipped housing unit for immediate occupation. This type of rental offers interesting tax benefits, especially under the Non-Professional Furnished Landlord (LMNP) or Professional Furnished Landlord (LMP) regimes. However, it also comes with specific legal obligations. This article explores the tax benefits and obligations related to furnished rentals in France.

Non-Professional Furnished Landlord (LMNP) Status

The LMNP status is available to any property owner who rents one or more furnished properties without making this activity their main occupation. This status has several tax advantages:

• Micro-BIC regime: If rental income does not exceed €72,600 per year, the owner can benefit from the micro-BIC regime, which offers a flat-rate deduction of 50% on declared income.
• Actual regime: If actual expenses (interest on loans, renovations, insurance, etc.) exceed the 50% deduction, it is possible to opt for the actual regime. This regime allows for the deduction of all expenses and depreciation of the property, significantly reducing the taxable base.
• Non-taxation of capital gains: After 22 years of ownership, capital gains are exempt from income tax, and after 30 years, they are completely exempt from social security contributions.

Professional Furnished Landlord (LMP) Status

The LMP status applies when annual rental income exceeds €23,000 and represents more than 50% of the household's total income. This status also offers tax advantages:

• Deduction of expenses and depreciation: Like the LMNP, the LMP allows for the deduction of all expenses and depreciation of the property, but property deficits can be offset against total income without limitation.
• Exemption of professional capital gains: In the event of selling the property after 5 years of activity, capital gains can be fully exempted if annual revenue does not exceed €90,000.
• IFI exemption: Properties rented under the LMP status are exempt from the Real Estate Wealth Tax (IFI) if they are considered professional assets.

Legal Obligations for Furnished Rentals

In exchange for tax benefits, furnished rentals come with several legal obligations:

• Rental agreement: A written contract is mandatory. It must specify the rental duration, the rent amount, payment terms, and the list of provided furniture.
• Equipment of the housing unit: The housing unit must be equipped with a certain number of furniture items defined by decree, such as a bed with bedding, cooking hobs, a refrigerator, etc.
• Activity declaration: The owner must declare their furnished rental activity to the Business Formalities Center (CFE) and register for the BIC regime (Industrial and Commercial Profits).
• Compliance with safety standards: The housing unit must comply with current safety standards, especially regarding electrical installations and fire risk prevention.

Real-Life Examples

Let's assume a property owner rents a furnished apartment in Paris for €1,200 per month. Their annual expenses amount to €6,000 and rental income to €14,400. Under the micro-BIC regime, they would benefit from a 50% deduction, resulting in a taxable base of €7,200. If they opt for the actual regime and can deduct their expenses, with depreciation of €3,000, the taxable base would be reduced to €5,400.

Laws Regulating Furnished Rentals

Furnished rentals are regulated by the Civil Code, particularly articles 1714 to 1762-7, as well as the General Tax Code for tax aspects. Owners must also comply with decrees setting out obligations regarding equipment and safety standards for housing units.

Conclusion

Furnished rentals offer attractive tax benefits, whether under the LMNP or LMP status. However, they also come with strict legal obligations that must be respected. By choosing the most suitable tax status for your situation and complying with current regulations, you can optimize your rental income while securing your investment. It is advisable to consult a tax expert or wealth management advisor to maximize benefits and ensure compliance with legal obligations.