What do you want to know?
Why create a land deficit?
Investing in a property to be renovated and carrying out work on it (repair, renovation and maintenance, upgrading) is an excellent way to optimize your taxation.
The bare rental (without furniture) of a property allows the owner to collect rents which are taxed in the category of property income.
If the charges (property tax, insurance premium, loan interest, works) are greater than income, the taxpayer finds a property deficit.
This land deficit can be charged to the taxpayer's other property income (rents from other bare rented property, or from SCPI shares) then to his overall income (up to € 10,700) and beyond this amount, on his property income for the following 10 years.
The land deficit system also has the considerable advantage of not being subject to the overall cap on tax loopholes of 10,000 euros in tax reduction per year.
Logically, the gain is all the more important as the taxpayer is subject to a high marginal tax rate. In all cases, the owner must rent his property at least until December 31 of the third year following the imputation of the deficit to take full advantage of the fiscal advantages of the land deficit.
Optimize your taxation by enhancing your wealth
What is the land deficit?
The owner of a rental property is in a situation of land deficit when the property charges that he bears (repair work, maintenance charges, co-ownership, insurance premiums, loan interest, property tax ...) are more important than the rents that he perceives.
This deficit is, under certain conditions, attributable to the overall income, within the limit of 10,700 euros per year and on the condition that the property is rented until December 31 of the third year following the imputation of the deficit.
Creating a land deficit means incurring, through a real estate investment, work expenses which will be deducted from taxable income. This ultimately amounts to investing your tax in the renovation, maintenance and improvement of your real estate assets.
To know : If you rent out a property for residential use and you fall or have opted for the real property income regime, you can include in your costs and charges, the work below if they have been paid during of the tax year:
improvement works
repair and maintenance work
Conditions of payment
The taxpayer may deduct certain construction expenses from his property income provided that:
that he rent the bare property (without furniture) as soon as the work is finished,
that he chooses the real tax regime (no micro-land),
that it carries out maintenance, repair or improvement work (the work carried out by the co-ownership is also deductible depending on its nature),
that he deduct the work in the year from its payment.
Deductible expenses
All charges are not deductible from income and therefore do not participate in the land deficit.
The management and administration costs of the property (remuneration of a concierge or the costs of a real estate agency or a condominium manager, for example)
taxes related to housing and not recoverable from the tenant such as property tax
repair and maintenance expenses, whether for work caused by the dilapidated housing or to facilitate its rental *
provisions for charges in the context of a co-ownership
rental charges, if you have not been able to recover them from the tenant on December 31 of the year following his departure
compensation for eviction or rehousing of a tenant
insurance premiums
interest and borrowing costs.
* On the other hand, construction, reconstruction or expansion work cannot be deducted from your property income.
Investors
This investment can be offered to people who receive highly taxed property income (more rarely for people without pre-existing property income) and who wish to reduce the taxation of their property income without being able (or wanting) to sell the property that they own. provide these rents.
It is essential that the owner intends, once the work is completed, to rent the bare property (without furniture) and to submit the rents he receives to the real property tax regime (loss of interest in the case of micro-land).
Acquire a property with or without contribution?
Regarding a rental investment, the answer is: without contribution.
In fact, the loan interest as well as the loan costs (costs of constitution of the loan file, mortgage costs, borrower insurance premium) are deductible from property income and therefore reduce the amount of taxable income. A contribution only makes sense to reduce the savings effort or shorten the duration of the loan.
The type of loan, loan in fine or repayable, depends on the savings effort that the investor is prepared to devote to his investment. The loan in fine limits the monthly effort since the borrower only reimburses the interest (the capital will be reimbursed in one installment over time) but it requires the availability of a capital that can be given as a guarantee (or regular payments on a life insurance contract).
Expenses relating to loan interest subscribed for the acquisition of a bare rental property are deductible, but exclusively from property income (for the year of payment or the following 10 years). No charge against overall income is possible.
Taxation
The main advantage and not the least of the land deficit is not to enter into the ceiling of tax loopholes, limiting the tax advantages thereof to € 10,000 per year.
As a result, the owner can combine the tax reductions from other property tax exemption laws with the property deficit, which is limited to € 10,700 per year.
In addition, the land deficit (beyond € 10,700 per year) can be carried over to the following tax years.
The interests of the land deficit are multiple:
the possibility of deducting up to € 10,700 from the overall income, due to the deduction of charges
the possibility of deferring to the following tax years the land deficit greater than € 10,700
the possible combination with the tax advantages of other tax loopholes
Tax Niches
For taxpayers who have consumed all the tax exemption ceilings (€ 10,000 + € 8,000 for overseas investments), through reductions and tax credits, the only lever to reduce their taxation is to create a deduction.
Charges deductible from categorical income or from overall income (for example, a retirement savings payment deductible from overall income within the limit of an annual ceiling) reduce taxable income and therefore the amount of tax but are not subject to the ceiling tax loopholes.
The land deficit is a common law deduction system which, unlike tax exemption systems, is neither limited in the amount of investment, nor capped in the amount of works expenditure, nor restricted to a certain geographical area, nor conditional on a amount of rent or resources of the tenant, etc.
To create a land deficit and cancel the amount of your taxes, the principle is simple: it is a question of buying a housing to renovate in order to rent it, since the rents that you will receive will come to cancel the amount committed for them. works.
This deficit, ie the portion of charges greater than your property income, is attributable to your overall income (ie the sum of your salaries, retirement pensions, property income, etc.) up to a limit of € 10,700 per year.
Any excess land deficit (exceeding € 10,700) is attributable to your land income for the following 10 years.
If your deficit is greater than your aggregate income, then you can deduct the excess from your aggregate income for the next six years.
If your overall income is insufficient to absorb the land deficit, within the limit of € 10,700, a global deficit is created and the surplus is attributable to your overall income for the following six years.
Loan interest is deductible from your property income alone. Therefore, you cannot deduct them from your overall income. When calculating the land deficit, you must first deduct loan interest from your property income, before then deducting other charges.
To calculate the deficit, you must first deduct the loan interest from your property income. If the result is positive (the rents are higher than the loan interest), the owner of the property is not in a situation of land deficit concerning the loan interest
Note that the part of the expenses which exceeds the ceiling of € 10,700 and which cannot be deducted from the overall taxable income, can be deducted from the amount of rents received for 10 years.
Almost all of the charges borne by the owner are deductible (management, property tax, maintenance, etc.). When the property is rented out as a home, the owner can also deduct expenses for improving the property (renovation). However, it is not possible to deduct for tax the expenses for expansion, construction or reconstruction of the property.
The micro-land regime automatically applies to taxpayers who receive an annual gross land income of less than 15,000 euros and who do not rent a property subject to a special tax regime.
The micro-foncier gives you the right to a reduction of 30%.
The tax administration therefore applies a fixed allowance of 30% which takes into account the charges related to the rented accommodation. Only the remaining 70% is added by the tax administration to other income received by the taxpayer for the calculation of income tax due. Unlike the real regime, under the micro-land regime, the land result is always profitable, it cannot be in deficit.
The micro-land regime does not allow you to create a land deficit, since it involves applying a reduction of 30% supposed to cover the amount of your charges, which is rarely the case when major work has been carried out.
To be able to benefit from the land deficit, you must opt for the real regime, because it is this regime that allows you to deduct the costs and charges related to your property from taxable income.
Applicable automatically for land income greater than € 15,000, the real regime can also be chosen (for a minimum period of 3 years) below this threshold.
It is then a question of producing a declaration of all property income, real costs and charges, recognized by the tax administration.
Once the land income has been obtained, it is necessary to determine all the charges in order to deduct them from this said income. The result will constitute the tax base, called "property result".
The deductible costs and charges are clearly defined by law and can only concern the rental property:
home repair or improvement work expenses (note, expansion expenses are not deductible):
loan interest;
the sums incurred for the expenses of the co-ownership;
insurance premiums (insurance of the building, common areas, against unpaid rents or to protect against the vacancy of the rental);
management fees (if the property is administered by a third party);
the taxes ;
rental charges (subject to conditions).
Depending on the level of charges compared to the rents collected, the property result is either surplus or deficit
Advantages & Disadvantages of the land deficit
Land deficit
Example of use of a land deficit
1
Initial situation
Yvan receives € 20,000 in property income per year from a building. Its property income is heavily taxed because of the low deductible charges (€ 4,000 per year) and its marginal tax rate (41%).
Taxable net property income: € 16,000 x (41% + 17.2%)
Annual taxation : 9 310 €
He does not plan to sell his building, but wants to reduce his taxes. It has capital to invest of € 300,000.
2
Creation of a land deficit
With this investment, he decides to acquire an apartment for 100,000 € including € 200,000 for work to be done.
3
Final situation
Land income is neutralized for 8 years.
The total tax gain is € 114,560 ([€ 10,700 x 41% = € 4,387] + [189,300 x 41% x 17.2% = € 110,173]).
After 8 years, the land income (from the family building and this new home) will be taxed again.
Now all he has to do is sell or rent his apartment.
