Unfurnished letting : micro-foncier, actual-cost regime and rental deficit

Rent from an unfurnished property is taxed as rental income, under either the micro-foncier regime or the actual-cost regime. The choice depends in particular on the amount of income and deductible expenses; only the actual-cost regime allows a rental deficit to be recorded.

To understand the taxation of unfurnished letting, it is necessary to distinguish the flat-rate allowance under the micro-foncier regime from expenses actually deductible under the actual-cost regime, then examine the conditions for carrying forward any deficit.

Two regimes depending on income received

According to Service-Public.fr, rent from a house or flat let unfurnished is rental income. It is subject to income tax and must be declared. To determine the applicable regime, the threshold to consider is annual rental income, excluding expenses.

If this income does not exceed €15,000, the micro-foncier regime applies automatically, subject to exclusions: listed historic monuments, property benefiting from a specific deduction regime, or exclusive ownership of shares in certain property companies or real-estate investment funds. In these cases, the actual-cost regime applies automatically. Outside these exclusions, the landlord may nevertheless choose the actual-cost regime. Above this amount, the actual-cost regime applies.

Tax withheld at source takes the form of a monthly or quarterly instalment deducted from the bank account. Social levies are also collected by instalment, at a rate of 17.2 %. To distinguish these deductions from income tax, you can consult the explanations on social levies on property income.

The micro-land regime: a flat rate instead of expenses

The micro-land regime simplifies filing: the owner states the gross amount of their property income, without applying the allowance themselves. This represents 30% of property income and takes expenses into account on a flat-rate basis. The owner therefore does not deduct their works, insurance or other expenses separately.

The amount to declare is not necessarily limited to rent. To establish gross property income, the administration provides for taking into account, in particular, expenses normally payable by the owner but charged to tenants, as well as grants and compensation received. Expenses payable by the tenant are then deducted from this amount.

This arrangement requires particular attention when significant expenses are planned. Even if the costs actually incurred are high, the allowance remains a flat rate. The micro-land regime does not allow a property deficit to be created by deducting these expenses.

Choosing the actual regime when the option is available

When your rental income does not exceed €15,000, the comparison is between deductible expenses under the actual-cost regime and the 30 % allowance under the micro-foncier regime. The actual-cost regime may be worth considering if you incur significant deductible expenses, such as maintenance or improvement works.

The choice is not limited to the amount of invoices for one year: expenses must be eligible for deduction and substantiated. Loan interest and other expenses are also treated differently when a deficit arises. It is therefore useful to distinguish these items before comparing the regimes.

The option for the actual-cost regime is irrevocable for 3 years. This period matters if expenses are concentrated in a particular period or if their amount varies from one year to the next. A tax office or legal or accounting professional can advise you on your situation before you make this choice.

Income and expenses to declare under the actual-cost regime

Under the actual regime, net property income corresponds to the receipts collected during the year, less deductible costs and expenses at their actual and substantiated amount. Receipts include rent collected.

Amounts received as a deposit must also be declared when they are used to offset unpaid rent, restore the premises after tenants leave or finance service charges.

Among the main deductible expenses, the tax authorities cite:

• repair and maintenance costs ;
• improvement works, for example energy-efficiency renovations ;
• provisions for co-ownership charges ;
• insurance premiums, in particular home, rent guarantee or borrower insurance ;
• certain taxes, including property tax and household waste collection tax.

Interest paid during the year may also be deducted if the loan finances the acquisition, construction, reconstruction, extension, maintenance or improvement of a property intended to be rented out. The notaries also mention ancillary loan-related fees, as well as property management and administration fees.

The nature of the work matters: construction, reconstruction or extension costs are not deductible from property income. Conversely, repairs, maintenance and improvement works are among the permitted categories. Keep supporting documents identifying the nature and amount of the expenses declared.

If the property is let only in part, expenses are deductible for the let part. To determine the corresponding share, the official guidance states that the percentages used to apportion expenses between occupants should be used.

How is a property deficit set off?

A rental deficit arises when deducting expenses under the actual-cost regime results in a negative figure. Its treatment depends on the source of the expenses: interest on borrowing must be distinguished from other deductible expenses.

The portion of the deficit arising from expenses other than loan interest is deductible from overall income up to €10,700 (€15,300 for a property covered by the « Cosse » scheme). According to the administration, this deduction applies automatically. If overall income is insufficient to absorb the deductible deficit, it may be carried forward against overall income for the following 6 years.

The portion of the deficit exceeding this limit, as well as the portion relating to loan interest, is deductible from property income for the following 10 years. Carrying forward against property income therefore does not work in the same way as setting off against overall income.

The deduction from overall income may be challenged when the rental of the property ends during the 3 years following the year of the deduction. The notaries indicate that the unfurnished rental must continue until the end of the 3rd year following the deduction. It nevertheless remains valid if the end of the rental is justified by redundancy, incapacity, death or expropriation of the property.

The increased ceiling for energy-efficiency renovation

The ceiling for setting off against overall income may be increased to €21,400 for energy-efficiency renovation expenses. The property must achieve an A, B, C or D rating after the works, whereas it was previously rated E, F or G; this result must be achieved no later than 31 December 2027.

The expenses must also relate to a quotation accepted from 5 November 2022 onwards and have been paid between 1 January 2023 and 31 December 2027. The increased ceiling therefore depends both on the energy result achieved and on the dates of the quotation and payment.

Before using this amount in your calculation, check the characteristics and dates of your transaction. The rental income factsheet sets out the conditions applicable to the property deficit and the increased ceiling.

Declaring property income

Under the micro-land regime, the gross amount of property income, without any allowance, is entered on income tax return no. 2042. Under the actual regime, the owner provides details of the calculation of their net property income and completes return no. 2044 or special no. 2044, to be attached to the overall return no. 2042.

Special return no. 2044 must be completed if the owner has at least one property covered by a special regime, such as a listed building, if they have opted for a depreciation deduction for new homes, or if they benefit from a specific deduction linked to a Scellier scheme. It also concerns the bare owner who has borne expenses for a property rented by the usufructuary, as well as the holder of SCPI units who has opted for their deduction by depreciation.

Online filing is mandatory when the main residence has internet access and the filer is able to complete the process online. The public finance area provides access to the return and tax information documents.

In Veules-les-Roses and on the Alabaster Coast, owners of properties let year-round may be affected by these tax choices. Cabinet Soudey offers properties to let year-round and property management for properties let year-round through its sister company PCG Gestion.

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