Real Estate Wealth Tax (IFI): What You Need to Know
The Real Estate Wealth Tax (IFI) was established in 2018 to replace the former Solidarity Tax on Wealth (ISF). This tax concerns real estate assets whose net taxable value exceeds 1.3 million euros on January 1st of each year. This article explores the assets covered by the IFI, the calculation methods, as well as strategies to optimize this taxation.
Which assets are covered by the IFI?
The IFI applies to all real estate assets held directly or indirectly by the taxpayer, as well as certain real estate rights:
- Built and undeveloped real estate: This includes primary residences, secondary residences, rental investments, land, etc.
- Shares in real estate companies: Shares held in companies such as SCI (Real Estate Civil Societies) or SCPI (Real Estate Investment Trusts) are also covered, if these companies are not subject to corporate tax.
- Real estate rights: Rights of usufruct, bare ownership, or enjoyment, as well as real estate leasing contracts, fall within the scope of the IFI.
IFI Calculation
The calculation of the IFI is based on the net market value of real estate assets on January 1st of the tax year, after deducting certain debts. The main steps of the calculation are:
- Asset valuation: Assets must be valued at their market value on January 1st of the tax year. In case of valuation difficulties, it is possible to refer to comparable transactions or to request an appraisal.
- Debt deduction: Deductible debts include loans contracted for the acquisition, maintenance, or improvement of real estate assets, as well as expenses related to construction or major works.
- Calculation of the taxable net value: After deducting debts, the taxable net value is subject to a progressive scale ranging from 0.50% to 1.50%, depending on the value of the real estate assets.
Exemptions and Deductions
Several exemptions and deductions are provided for under the IFI:
- 30% deduction for primary residence: The value of the primary residence benefits from a flat 30% deduction, which helps reduce the taxable base.
- Professional assets: Real estate assets used for the taxpayer's professional activity are exempt from IFI, under certain conditions.
- Exemption for woods, forests, and shares in forest groups: Under certain conditions, these assets may benefit from a partial or total exemption.
Declarative Obligations
The declaration of the IFI must be made at the same time as the annual income declaration, using form 2042-IFI. Taxpayers must declare the value of their real estate assets and deductible debts, as well as any applicable deductions or exemptions.
IFI Optimization Strategies
Several strategies can be implemented to optimize the IFI:
- Donation in bare ownership: Donating assets in bare ownership allows reducing the taxable value for IFI, as only the bare ownership is subject to tax, while the usufructuary pays nothing.
- Investment in professional assets: By allocating certain real estate assets to a professional activity, it is possible to exempt them from IFI.
- Financing through loans: Using debt to finance real estate investments allows deducting the loans from the taxable value.
Real-Life Examples
Let's assume a taxpayer owns real estate assets valued at 2 million euros, including a primary residence worth 1 million euros and other real estate assets. After applying the 30% deduction for the primary residence (300,000 €), the taxable value is 1.7 million euros. If this taxpayer has deductible debts of 200,000 €, the taxable net value is reduced to 1.5 million euros. The IFI will then be calculated based on this value.
Laws Regulating the IFI
The Real Estate Wealth Tax is regulated by the General Tax Code, notably articles 964 to 983. These articles specify the calculation methods, possible exemptions, and declarative obligations. Taxpayers must also comply with specific rules for valuing assets and deducting debts.
Conclusion
The Real Estate Wealth Tax (IFI) is a complex tax that requires a good understanding of tax rules and optimization strategies. By correctly assessing real estate assets, applying available exemptions, and carefully planning the management of one's wealth, it is possible to reduce the impact of the IFI on real estate assets. It is recommended to consult a tax advisor to maximize tax benefits and ensure compliance with declarative obligations.
