How to lower estate taxes in 2024: an action plan for 2023?

Real estate in France remains a secure asset, but taxation can be significant. There are solutions to optimize this situation.

Most of the taxes relate to income from real estate (return 2044)

Often derived from renting out former primary residence in France during emigration. In the same category are income from SCPIs and other properties rented out in an unfavorable condition. Excluding deductions, the tax is 37.2% of the taxable amount (20% tax and 17.2% social contributions) and over €25700 of net income from real estate in France is 47.2%. This is where you need to act to reduce your tax burden! Here are 5 possible solutions for 2024.

1. Switching to real mode

The first way to optimize taxes on your real estate income is to give up convenience in your next tax return. If your real estate income is less than €15,000 per year, you have a choice between a forfeit deduction of 30% of your income (the so-called micro-foncier) or taking payments into account, that is, switching to real accounting with a 2044 return. In most cases, the real treatment will be more interesting due to a little administrative work in May. What you need to do: check the used regime in 2023 and move to the real regime in 2024.

2. If your real estate income exceeds €15,000 per year

It is imperative that you utilize the real estate regime. You fill out a 2044 return and take into account all your real estate income and deductions, including mortgage interest, property taxes, ongoing expenses (custodian, agency, insurance) to collect from various parties, and deductions for work (see below). What you need to do: make sure all expenses are properly accounted for.

3. Carrying out works

The impact of Diagnostic Power Efficiency (DPE) on older properties forces owners to undertake energy efficiency improvements (see our article on this topic). Much of this work can be deducted from property income. This is an opportunity to lower taxes and reduce energy bills. However, construction, remodeling and expansion work is not deductible! Therefore, adding a floor or expanding a home does not fall under this definition. Deductions for work are only available for rental properties, so there is no deduction for insulating a summerhouse (see our article on this topic). The joys of remote work. An effective way to reduce taxes is to carry out work on rented properties. While tenants will be happy to improve their comfort, they won't always be happy to have major works carried out. Managing the works is difficult, especially when you are in a different location. It's a decision that should be avoided without local help and appropriate technical knowledge. Real estate income deficiency project. How do you create a deduction without having to manage the works? Invest in a real estate income deficiency project. This is a project that involves buying a building in poor condition and having major work done by professionals. Deductions for the work can range from 40% to 80% of the cost! For this to be beneficial, you need to make at least €50,000 in deductions for the works and lease the property for 9 years. Tax on real estate income will be reduced or canceled

4. Temporary nude property with credit

How to increase loan interest deductions without generating additional income?

5. Stop renting out

Some owners, annoyed by the amount of taxes and possible problems with tenants, decide not to rent out their property. It is necessary to wait until the property is vacated, as it is usually not possible to evict a tenant before the end of a 3-year contract with at least 6 months' notice. This decision also has its cost, especially in stressed areas where real estate investments are often made. In this case, the property left unoccupied will be subject to a special tax. Alternatively, if the home is furnished and used occasionally by the owner, the owner will have to pay occupancy tax. We have recently published a special article on this topic, click on this link to access it. If you are unable to use the property on a regular basis, it is best to consider selling it. This is especially true in metropolitan areas where real estate prices have risen significantly in recent years (Bordeaux, Lyon, Paris, most notably). Even if real estate prices are rather stagnant or declining in 2023, the price appreciation in previous years provides an interesting profit. What you need to do: if the lease is for more than 6 months, assess the value of your property.

6. Transition to furnished rentals

The business terms of renting furnished and unfurnished accommodation are completely different. From a tax point of view, renting furnished accommodation is the most favorable. Is it possible to envision the transition from unfurnished to furnished rentals? When renting a furnished dwelling, the owner must provide furniture, a list of which is provided by the tax authorities. The tax authorities are particularly attentive to such changes. You can only change to a furnished lease if there is a change of tenant. Is moving to a furnished lease a good idea? In France, most tenants move in with their own furniture. Furnished rentals are only for temporary situations (studies, vacations, change of marital status) and are therefore reserved for a specific market segment (city center, resorts). In any case, a more frequent change of tenants will result in significant additional costs. Outside of these areas, renting a furnished property can be a real inconvenience with difficulties in finding a tenant. Ultimately, the transition to furnished rentals is difficult to make from a distance and is not always very favorable in comparison to the problems that arise. However, it is a solution that should be considered for new investments, especially for properties that are well suited for this type of rental.

If you would like to influence the tax liability on your real estate income from Asia, contact us for a virtual or in-person meeting.