Secrets They Never Told You About Tax Benefits Advantage Of Renting your Furnished Property In France
1) Offsetting any tax and deductible costs relating to the propertyThere are numerous costs that owners of furnished properties in France must bear that can be deducted from their tax. These include:
- The notary fees paid at the title deed signature stage can be deducted over the first 3 years of ownershi. (Notary fees are calculated at around 2.5% of the purchase price)
- All charges related to the property (co-ownership charges) can be deducted from the taxable amount
- Land taxes are also deductible
- The cost of one return journey to your French property (based on the official French Tax Authorities tariff)
- The annual interest on the mortgage
- Accountants’ fees are also deductible, approx. €270 per year
2) Amortising the PropertyIn the realms of property tax, the amortization can be a troublesome concept for some buyers and investors to grasp simply as it isn’t a system that is widely used in their own country (i.e. the UK). Amortisation is the simple process of depreciating the ‘paper’ value of your property. To be clear, nothing is being done to the property’s actual value; this will remain consistent with the local market. The French tax authorities consider about 20% of a property purchase price to be land, which cannot be amortized. The remaining 80% of the property can be amortized (‘on paper) by either 4% per annum over 25 years or 3.33% over 30 years (3.33% x 30 = 100%). The amortization can be deducted from your rental income, allowing you to reduce or even eliminate your income tax liability. Any furniture costs can also be amortized over 10 years or 5 years meaning even less tax is applicable as it gives you another cost that can be offset against your rental income.
Example of amortization:
- You buy a property costing you €100,000 + €10,000 for furniture
- You receive a rental income of €4,000 every year
- You can amortize the €80,000 (80% of the €100k property value) over 25 years which equates to €3,200 every year. The €10,000 furniture costs are also amortized and over 5 years this would equate to €2,000 per year.
Only use amortization when you need to…Amortisation can be started whenever an owner chooses. For owners who have bought a property using a mortgage, the mortgage interest value and other off-settable costs can often be enough to cancel the rental income tax liability altogether which means there is no reason to start using your amortization value to offset your tax. Instead, you can start using your amortization only when you need it (for example when the mortgage interest isn’t enough to offset 100% of your rental income). At the moment, with French mortgage rates at historic lows, most buyers opt to finance their purchase. When finance is used, during the first few years of property ownership, the mortgage interest and other deductible costs can normally offset the entire taxable figure on rental income. This means the amount of tax you pay on your rental income is negligible or nothing at all. Once the mortgage interest is paid off or is no longer enough to offset 100% of the rental return, or if the purchaser bought using cash, then the amortization can begin, meaning the tax on rental income can still be significantly reduced or in most cases completely eliminated.
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