Each year, you rent your second home to pay the property expenditure. The question you always ask is whether your rental income should or not be declared to the French tax authorities.
On this point, the French law is very clear Any French income must be declared in France, whatever the nationality of the property owner is. Therefore, it becomes necessary to pay special attention to the tax regime that you will chose to declare your rental income.
If you want to sell your property in 5 years, the declaration of your rental income will allow you to be a professional furnished landlord (Loueur en meublé professionel – LMP), and be exempt of the capital gains tax after 5 years instead of 15 years.
In addition, the LPM régime will allow you to have all the favours of the BIC – régime simplifié described below. > Depreciation of the property and the property expenditure is tax deductible.
You can declare your rental income under the Micro – BIC régime. > 71% tax allowance is automatically deducted in place of actual expenses.
Example: Your annual rental income is 50 000 euros. You will declare 14 500 euros, and you will have to pay the CSG CRDS (social contributions – 11%) and the income tax. For the non residents, no CSG CRDS and the income tax is at a fixed rate of 25% > 3625 euros income tax.
This solution is available for properties that were purchased many years ago for a low value, and indeed have little depreciation, or properties with little expenditure.
BIC – régime simplifié, generally no income tax as a result of the depreciation of your property.
Example: You bought your second home 500 000 euros. The depreciation over 20 years will be the value of the property, minus the land, approximately 20% of the property value. It will be 400 000 euros over 20 years, 20 000 euros per year tax deductible.
Also, the property expenditure is tax deductible (Insurance, mortgage interest, maintenance, financial expenses, real estate agency fees, travel, electricity, telephone, etc…).
All these charges will create a deficit on your total French income since the 2007 finance law.
If your rental income is more than 76 300 euros, we advice you to declare it under the BIC – régime simplifié. You will have no capital gains tax and no income tax on your rental income. You’ll be straight toward the tax authorities.
If you acquired your second home through an SCI, you can’t rent your property FURNISHED. You will have to transform it into an SARL de famille or Société en nom collectif to ensure that your SCI won’t be subject to the corporate tax (33,33%). If not, you will have to pay the capital gains tax at 33,33%, and this no matter how long you have your property.
If you only rent one property furnished, you won’t have to pay social contributions.