Invest in Non-Professional Furnished Rental or LMNP

What is LMNP furnished rental?

In the case of the purchase of a property made directly by a natural person (as opposed to a purchase through an SCI or another form of company), there are two different tax regimes:

  • land tenure
  • The LMNP diet.

the default regimen is regimen land. Optionally, and provided that the property is rented furnished, it is possible to benefit from the status of Furnished Non-Professional Tenant (LMNP).

In the latter case, the investor can choose between two options:

  • Micro BIC plan (or plan)
  • real plan

Micro Bic (package) : the investor can tax deduct a fixed amount of charges corresponding to 50% of the income received.

Real : the inverter can switch to real all rental charges related to property operated in LMNP. including theamortization well. This last point is one of the great advantages of LMNP status, as we detail below.

Thomas’ Notes

In most cases, and particularly if major works are being carried out on the property, it is more advantageous to deduct rental expenses in real instead of in a way lump sum with Micro BIC option

FurnishedUnfurnished (bare)
Income QualificationBICproperty income
Tax regimeLMNP

(one)

tax optionRealmicro bic (or package)Realmicro earth
deductible expensesTotal rental chargesFlat rate: 50%Total rental chargesFlat rate: 30%
Asset depreciationYesincluded in the packagenotincluded in the package
Deficit TreatmentReportable for 10 yearsSameReportable for 10 yearsSame
Added value treatmentgradual reductionSamegradual reductionSame

(1): LMP if annual income > €23,000 and income > the total amount of other household income

The advantages of non-professional furnished rentals

LMNP furnished rental allows you to pay less taxes when depreciating the property

The main advantage of LMNP status is the ability to deduct from the tax base the depreciation of the property acquired. Or more precisely the depreciation expense. This is an important peculiarity of the LMNP, from which investors in land ownership (the majority alternative to the LMNP) or in LIC do not benefit from Income Tax (IR).

To all the deductible rental expenses, the amortization of the property is added (notary expenses, agency fees, rental management, work, purchase of furniture, etc.). Consequently, the fiscal result in LMNP is generally negative the first 5 to 8 years of operation of the property. Depending on rent level, amount of charges and cost of credit.

Thomas’ Notes

Amortization periods are defined in accounting terms. Each component of a property (structure, facades, roofs, plumbing network, etc.) has its own amortization period. Which varies from 5 years to more than 50 years for the envelope component. This does not facilitate the calculations.

Reduction of taxation on capital gains on rental property

The capital gains tax calculation is doubly advantageous.

1. Progressive reduction according to the length of detention

In LMNP, it is the private capital gains regime that applies (as in land tenure). From the 6th year of hospitalization, it offers a progressive reduction of the two components of the capital gains calculation base: personal income tax and Social Security contributions.

As a reminder, capital gains of natural persons are subject to two taxesyes

  • On the one hand, personal income tax (19% for capital gains < €50,000
  • );

On the other hand, the taxation of social security contributions (17.2%).

: an additional tax, between 2% and 6%, is applied in the context of capital gains > €50,000.

From the 6th year, the individual investor benefits from a discount on the tax base of his capital gain (if applicable). Both for the part subject to personal income tax and for the part subject to social security contributions. As specified in the following table:Discount rate for the sale of real estate

Reduction rate per year of ownership

Income tax baseBase of social contributionsunder 6 years old
0%0%From 6 to 21 years
6%1.65%22 year completed
4%1.6%Beyond the year 22
Exoneration9%Beyond the 30th year

Exoneration

Exoneration

Source 2. Not taking into account depreciation at the time of sale

In LMNP, at the time of resale, the calculation of capital gains does not take into account the accumulated depreciation of the property. This is an important advantage. As a reminder, the classic accounting rule for calculating the capital gain on a depreciated asset is as follows:capital gain = sale price – (purchase price –

property depreciation )In

LMNP

the rule for calculating the capital gain is as follows: capital gain = sale price – purchase priceIt is understood that in the context of a sale of an LMNP-operated property,

the investor benefits from the advantage of the tax depreciation of the property throughout its operation

without the tax consideration at the time of resale.

What criteria must be met to benefit from the LMNP? Furnished rental property must be…furnished! The first criterion to be met is, of course, renting the property furnished. AN decree of July 31, 2015 specifies the

  • essential furniture
  • :
  • Bedding including duvet or blanket;
  • screen device for windows in rooms intended to be used as bedrooms;
  • Hot dishes ;
  • oven or microwave oven;
  • Refrigerator and freezer or, at least, a refrigerator equipped with a compartment that allows a temperature lower than or equal to – 6 °C;
  • Tableware necessary for meals;
  • Cookware ;
  • Table and seats;
  • storage shelves;

Illumination artifacts;

  • Cleaning team adapted to the characteristics of the accommodation”
  • In practice, this is a real limitation because the majority of French rental stock is operated on a basic rental basis. To operate a property in LMNP, the investor has several options:
  • buy an empty (rare) property to furnish;
  • buy a furnished rental property (very rare outside the IDF);

buy a bare rented property and wait for the tenant to furnish. Meet an income threshold To benefit from

  • LMNP Advantageous Status,
  • one or more of these criteria must be met:

Rents without expenses of all the dwellings operated in LMNP within a tax household (“cumulative gross income of LMNP”) of less than €23,000.

LMNP cumulative gross income is lower than other taxable family income.

Otherwise, that is, if none of the following conditions are met, you will not be able to benefit from LMNP status but from Professional Furnished Rental Company (LMP). With the possibility that your income from professional rentals be taxed either in the category of Industrial and Commercial Benefits (BIC) or in the Corporation Tax (IS). The depreciation treatment is identical. On the other hand, the exploitation of the property, assimilated to a professional activity, is subject to the

Corporate property tax

(CFE). Invest directly to benefit from the LMNPLMNP status is

reserved for private investors who have purchased a property directly

. It is not possible, for example, to benefit from this status if you buy your property through a company (SCI, SARL, etc.).

However, it is quite possible to operate a property in LMNP with several people, for example as a couple. In this case, the declaration can only be made once per property and addressed in the name of one or the other of the spouses.

What are the steps to benefit from the LMNP?

Declare your non-professional furnished rental in the registry

Within 15 days of acquisition, the investor must complete a form (POi) to declare their LMNP activity. The date of acquisition, the address of the property, the tax option chosen (real or micro Bic) are specified…

This form must be sent to the Registry of the Commercial Court on which the city where the property is located depends.

After this declaration, the Registry records your activity and assigns you a Siret number that will identify your property at the time of your tax return.

Keep accurate accounts of income and expenses.

The operation of a property in LMNP requires, in particular in the case of the real option, rigorous accounting of all income and expenses directly related to your property.

In particular, all invoices for works, furniture purchases, rental management expenses, ordinary maintenance of the property, fluids (water, electricity, gas, etc.) must be kept.

If necessary, remember to keep track of your travel expenses and mileage. If you can prove that these costs were directly related to the operation of the property, they can be deducted from the tax base.

File your annual accounting statement for all of your LMNP assets

Each year, you need to make an accounting statement for your LMNP activity. For this, it is possible to use an accountant (account around €1000/year) or to make your declaration yourself with the help of an online accounting web application.

Prices vary depending on service providers and level of support. Count between €250 and €500 in accounting expenses through an online application.

In all cases, it is essential to keep proof (invoices, notarial deed, vehicle registration document for mileage expenses, etc.) of all declared income and expenses.

What to remember about real estate investing in LMNP

The LMNP was historically created to stimulate the rental market for furnished properties, in a “ready to move in” manner for tenants.Today, it is undoubtedly one of the most advantageous tax regimes for rental investment and, in general, for investment in real estate.The other side of the coin, in the current context of budget deficit reduction, has been in the sights of public administrations for years. In particular, the 2022 Public Action Committee (

CAP 2022

), which examines, among other things, the LMNP device and the Pinel device.

One of the possible levers for a review of LMNP status would be reincorporating depreciation into the capital gains calculation.

In this context of fiscal uncertainty, another device is highly appreciated by rental investors. This is the SCI for the IS. This benefits from numerous specific advantages and a favorable tax evolution with the progressive reduction of corporate tax in the last 5 years.

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