Landlords • About Furnished Rentals
Micro-BIC, Be Careful!
This article is not valid anymore : please refer to "Micro-BIC or réel ?"
Fiscal rules have been modified in 2009.
The French finance law has decreased the annual rent limit, under which the « micro-BIC » regime (the Industrial and Commercial Profits regime) applies, from €76,300 to €32,000.
That very same law has also reduced the fixed abatement from a previous 71% to a 50% today. Which is as much as to say that your taxes are being increased.
You must have understood that if in 2009 your rental income overcomes the fatidic threshold of €32,000, you are no longer eligible to the « micro-BIC » regime. You are then taxed under the « au réel » regime (« real » regime).
However, for those already under the « micro-BIC » regime in 2008, the administration has introduced a transitional period which allows them to extend the regime for two more years : the fiscal instruction 4F-3-09 states that taxpayers with incomes (from furnished rentals) in 2008 ranged from €27,000 to €76,300 remain under the « micro-BIC » regime whatever amount of income is received in 2009 (first year of crossing upward) and in 2010 (second year of crossing upward), as long as they are not subject to VAT (which is generally the case for owners of old apartments).
In that case, they can then declare in their income tax return the amount of their gross income in the "micro-BIC de location meublée" box (which stands for "micro-BIC regime for furnished rentals").
Under the « au réel » regime, you will have to declare actual expenses and income from your rental management so to establish the balance sheet of the rented property
Actual expenses are, for example, service charges which are not recoverable in tenant's rent, management fees, De Circourt Associates' administration costs (but also gas and electricity invoices, Internet costs, or even sometimes the local tax; this applies whenever these service charges are included in the rent. The reason is that they increase rental income even though there are not rents). As a general rule it concerns any expense not considered as an investment by French tax authorities. As investments lead to depreciation not deduction.
By deducting actual expenses from rental income, you obtain the amount to be declared in the appropriate field of the tax return. For the 2008 income tax return, it has to be specified in the NO box of the supplementary declaration 2042CK concerning non-professional lessors of furnished property (« loueurs en meublé non professionnels »).
Attention: it is imperative to keep actual accounting records up to date for a period of three years plus current year in case you have to deal with a tax inspection.
Under the « au réel » regime, a deduction can be written up as a real estate property expense. Thus, reducing proportionnally the reported taxable earnings (or increasing the loss in case of deficit). The depreciation compensates the physical deterioration of your property due to use and time passing. As this expense strictly concerns accounting records, you have no disbursement to make. And yet it reduces the taxable net income.
How to calculate the depreciation?
Depreciation depends on building type (old construction, general condition, new construction, house or apartment, and its estimated life span), knowing that it can not be applied to the land upon which it is built.
For instance, the life span of a Haussman style building can be estimated to hundred years;
tax administration allows a depreciation over eighty years. On the contrary, a new building of average quality can be depreciated over forty years, which subsequently increases the annual depreciation amount.
One last point: the taxable net income that you will report under the « au réel » regime will be increased by 25% when calculating the tax; i.e. if you declare €100 in income, you are taxed on the basis of €125. Unfair taxation lives on as tax avoidance opportunities are prohibited!
NB : The « micro-BIC » regime was not affected by this aberration and still isn't.
Patrick Azan, Property Tax Expert for Lessors, and Claire de Circourt
Published on November 20th, 2009