Conditions and pitfalls to avoid

In France, most property owners are subject to real estate wealth tax (IFI) if their net worth exceeds 1.3 million euros. However, there are certain exemptions for Professional Furnished Rentals (LMP). In this article, we will look at the requirements to qualify as an LMP and common mistakes to avoid taking advantage of this tax exemption.

Conditions to be considered a professional furnished rental company

To be exempted from IFI as an LMP, you must meet two main conditions:

1. Generate more than 23,000 euros in annual rental income from furnished properties
2. Derive at least 50% of your gross income from your furnished rental activity

If you qualify for these requirements, you will be able to declare your furnished rental properties as commercial assets and thus avail the IFI exemption.

Understand the criteria to avoid mistakes

It is important to consider eligibility criteria carefully to avoid unpleasant surprises. Some people make the mistake of considering the gross amount of rent received instead of the net amount of rental income after deductions. As per Capital’s reminder, it is the net amount that should be used to determine whether you qualify as an LMP and hence exempt from IFI.

For example, one couple was subject to a tax adjustment because they considered the gross rental amount instead of the net amount after deducting the charges and expenses associated with the rental. To avoid this type of situation, accurately calculate your net rental income and make sure it represents well over 50% of your gross income.

Exemption from IFI in case of retirement

Knowing that retirement pensions are not factored into gross household income, it may be easier for retirees to meet the eligibility criteria to avail of the IFI exemption as a furnished rental company professional.

However, it is important to note that cumulative conditions can make it difficult for many individuals, including retirees, to obtain this exemption. You should therefore pay attention to the evolution of your rental activity and regularly consult an accountant or tax expert to check whether you are still complying with the legal requirements.

Why does this exemption exist?

The main objective of this tax exemption is to encourage investment in real estate and promote the development of commercial furnished rentals. By providing tax incentives to qualified owners, this can help support the property market and meet housing needs in France.

To avail the IFI exemption as a professional furnished rental company, it is important to understand the eligibility criteria and avoid common mistakes, such as considering the gross rental amount instead of the net. Additionally, it may be wise to consult an accountant or tax expert to verify your compliance with the legal requirements and thus take full advantage of the tax benefits offered to LMPs.