Non-Professional Furnished Rental (LMNP) is an advantageous tax arrangement that allows you to invest in real estate while benefiting from certain tax benefits. However, it’s important to understand how to report this income to take full advantage of the tax deduction and avoid mistakes that could result in financial penalties. This article explains the various steps for declaring income from non-commercial furnished rentals.
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1. Check your eligibility for LMNP status
Before committing, you should assess whether your situation fits that of a non-commercial furnished rental company. To do this, several criteria must be met:
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- Your annual rental income must not exceed €23,000 or less than 50% of your gross income.
- The accommodation must be furnished and offered for rent on a primary basis for a period of at least one year (excluding seasonal rentals).
- You must not be registered to trade and companies register as a professional rental company (LMP).
If you fulfill these conditions, you can claim LMNP status and thus avail the associated tax benefits.
2. Choose between micro-BIC diet and real diet
Choosing a tax regime is a key step in optimizing your rental income in LMNP. Indeed, industrial and commercial profits (BIC) from non-commercial furnished rentals may be subject to the micro-BIC regime or the actual regime. Each of them has advantages and disadvantages that mainly depend on your rental income and your charges.
Micro-BIC Diet:
- Accessible if annual rental income is less than €70,000.
- Flat rate deduction of 50% on total income for computation of tax.
- No actual expenses are deductible.
Real Food:
- Applies if annual rental income exceeds €70,000 or if you voluntarily choose this arrangement.
- Deduction of actual charges and depreciation on rental property.
- More demanding accounting is needed.
Depending on your situation, it may be wise to consult a real estate advisor to choose the most suitable plan for your investment.
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3. Complete a declaration of activity as a non-commercial furnished rental company
The first step involves sending a declaration of activity as a non-commercial furnished rental company to the Commercial Court Registry. This must be carried out within fifteen days after the commencement of the tenancy. The declaration is made through P0i form, accompanied by proof of identity and proof of address. Once this process is completed, you will receive your SIRET number and be officially considered an LMNP.
4. Keep accounts in line with your tax regime
Depending on the chosen tax system, it is important to keep proper accounts:
- Micro-BIC: There is no particular obligation other than keeping an invoice for rent received and any charges. As no actual expenses are deductible, it is not necessary to keep full accounts.
- Real Food: It is advisable to carry out a simple balance sheet every year and keep all documents and supporting documents related to income and expenses related to your rental property. You must also declare VAT if your rental income exceeds €34,400 per year.
To facilitate the management of your accounting, the help of a chartered accountant specializing in LMNP governance can be invaluable.
5. Declare your rental income on your tax return
Income from non-commercial furnished rental must be declared every year, at the time of your income tax return. Forms to be filled vary depending on the tax system chosen:
- Micro-BIC: Report of Gross Rental Income (Rent Received + Charges Collected) in Non-Business BIC Section of Supplementary Declaration No. 2042-C-PRO.
- Real Food: In addition to the normal income tax declaration, declaration number 2031 is filed for non-business BICs, along with a simplified balance sheet and tax package number 2065.
It is important to ensure that you respect the deadlines set by the tax administration otherwise you will face penalties.
6. Pay Business Property Tax (CFE).
As an LMNP, you are liable for Business Property Tax (CFE), which is calculated based on the cadastral rental value of your property. CFE is due for the current year and must be paid jointly with property tax. So remember to budget for these additional costs in your estimate of the profitability of your real estate investment.
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By following these steps to declare income from non-commercial furnished rentals, you will take full advantage of the tax benefits of this status while respecting your legal obligations. To guarantee the success of your investment, don’t hesitate to call a professional specializing in LMNP Property Management.
