As a provider of furnished rentals, you can choose to declare your income under the micro-BIC regime or under the ‘Réel Simplifié’, which is often better. In this article we go in deeper on the Régime réel.
When you opt for the régime réel, you have to choose between these to options:
– Régime réel simplifié
– Régime réel normal
Which regime?
The ‘réel simplifié’ regime applies by law to the taxpayer whose annual pre-tax revenues ranges between €72 600 and €247 000. It can be applied by the preference of the taxpayer when his revenue is below €72 600.
When the revenue exceeds €247 000, it must be declared under the “normal reel” regime and not under the simplified one. In the end, the regime ‘réel simplifié’ is most suitable for owners.
Calculation of taxable profit
In the case of the regime ’réel simplifié’, taxable profits are calculated according to the rules for Industrial and Commercial Benefits.
The income is composed of pre-tax rental income, whether collected or not, as well as the provisions for charges provided by the contract and the additional recipes.
Consequently, your taxable revenue corresponds to the difference between annual revenue and annual charges, plus tax-deductible provisions for depreciation.
The regime ‘réel simplifié’ allows you to deduct the following charges from your furnished rental income:
- Invoices for maintenance and repair: only invoices related to maintenance and repairs may be deducted. Major construction works, reconstruction, extensions or improvements and all expenses related to major building work such as plumbing, roofing, the construction of a bathroom, central heating or elevator cannotbe deducted. Yet their depreciation is taken into account.
- Land tax (if the property is registered as an asset)
- Insurance fees (if the property is registered as an asset)
- Management cost
- Fees paid to the accountant
- Litigation expenses in case of procedure with the tenant
- Utilities service and consumption integrated in the rent (electricity, water, telephone, internet)
- Loan interest, increased by application fees, loan guarantee fees and insurance premiums (if the property is registered as an asset).
- Registration fees, notary fees related to the acquisition of the good (if registered as an asset)
- Provision for liabilities (for example, payment risk)
The “réel simplifié” system allows deduction of tax-deductible depreciation provisions
In accounting, tax-deductible provisions for depreciation allows taxpayers to recover the cost of property or assets they’ve “placed in service” as part of their business operations. They generally cannot deduct the full cost of an asset in the year of purchase if it is a capital expenditure, but can instead spread the cost over a number of years in a process known as depreciation.
In the case of renting out a furnished property, we estimate the depreciation of the used asset and add it as a charge to taxable income, reducing net income by the same amount, pushing downward the tax paid on the exercise.
The elements subject to depreciation are listed here.
- Depreciation of plant and equipment (if included in assets)
- Depreciation on equipment and furniture (if included in the assets)
- Depreciation on major construction, reconstruction, extensions or improvement (if included in the asset)
As you can see, depreciation is clearly one of the most important elements of renting. Following the rules can clearly help you save a lot of taxes. It is often through depreciation that many owners avoid paying a lot of taxes. 85% of them pay very little or even zero taxes.
However, it is good to precise that it is an imperative, when offering a furnished rental service, to ask for help in doing the tax return when you are in the regime “Réel Simplifié”.
Indeed, one mistake on the cerfa declaration form, or during the calculations can make this regime very burdensome and less profitable and can force you to call upon a professional service for the corrective reports of the previous years, which can be particularly costly.
What are the concrete obligations ?
To declare your revenues when you are under the ‘Réel Simplifié’ regime, you must send a special declaration n° 2031 via a teletransmission system to the corporate tax authority responsible for your property.
This teletransmission of your furnished rental income, when you are under the “Réel Simplifié” regime, must contain the following attachments:
- A simplified balance sheet showing the credits and debts noted at the closure of the exercise attachment n° 2033-A.
- A simplified profit and loss account of the concerned exercise composed of 2 sections (Accounting results and fiscal results)- attachment n° 2033-B.
- A table of tangible assets, a depreciation table and the elements of profit and loss according to the fiscal regime- attachment n° 2033-C.
- A provision statement, derogatory amortizations and reportable deficits- attachment n° 2033-D.
- A table allowing the calculation of the added value produced during the exercise – attachment n° 2033-E.
The benefit is declared, under the control of the tax administration.
The accounting obligations are very limited: you must keep record of income, expenses, and, if necessary, a record of assets.
Advantages and disadvantages
Although the tax return and accounting formalities are more complex, in most cases the régime réel simplifié’ allows you to optimize your taxation.
In fact, it is common for the number of deductible charges and depreciation to exceed 50% of annual revenue.
- Support with your declaration
- The tax return and all the additional forms necessary to establish your income tax return are generated by our services.
Thanks to this service, you can easily declare your LMNP income under the Régime réel simplifié, and save taxes!
The “Simplifié Réel” regime: Frequently asked questions
| Questions | Answers |
| Does the ‘Simplifié Réel’ regime become less beneficial when I have repaid the interest on my loan or need to carry out works? | No: in most cases the “Simplifié Réel” allows you to save a lot of tax, especially through the depreciation mechanism. So even if you have no construction work to do or interest to pay on loans, it can still be more advantageous compared to the micro-BIC regime. You can test our free simulator here. |
| Can I can benefit from the ‘Simplifié Réel’ regime only if my rental income exceeds €72.600? | No: if your rental income is less than €72.600, you are automatically registered to the micro-BIC regime with a 50% lump-sum abatement. However, you can opt for the “Simplifié Réel” regime by a simply sending a mail. |
| If I register to the ‘Réel Simplifié’ regime and my revenue exceeds €72.600, do I become a Professional Furnished Renter? | No: To be considered a Professional Furnished Tenant, your rental income must make up the majority of your total income. |
| If I start a non-professional furnished rental activity in the ‘Réel Simplifié’ regime, am I engaged for a minimum of 3 years? | In the Furnished rental business, you can start an activity and sell or take back your property at will. A tax regime will only apply to you for the year of registration if you stop the option before the first of February of the year in question. |
| If I amortize my property using the ‘Réel Simplifié’ regime, does it impact the resale price? | No: In the case of resale as a non-professional furnished tenant, depreciation does not affect the resale price, nor the calculation of the value added. |
| I bought my property several years ago and do not rent it out anymore. How I do I evaluate my property? | The most important figure is the actual value of the property, not the purchase cost. To calculate this actual value, we recommend that you seek the advice of a real estate expert. |
| I bought my property this year: what value should I use? Can I deduct the purchase cost? | The value to use for an acquisition made in the current year is the acquisition cost. For the deduction, there are two possibilities: You can increase the acquisition value by the notary fees and management fees and depreciate them as you do with the property itself. You can leave the acquisition value unchanged and add these costs as expenses for the activity. |
| I did construction work in my property when I was living in it. Now I rent it out. What value should I use to calculate the depreciation? | To calculate the amount of depreciation, you must take into account the added-value generated by these works. Warning: you cannot add the acquisition cost to the invoices for construction work. |
| I bought a property this year, restored and furnished it before renting it out. How do I calculate the value of my property? | You have to use the acquisition cost. The expenses incurred can be added to the depreciable expenses. |
| How can I calculate the depreciation of my property? | The calculation of depreciation consists of listing the details of the costs: (land cost, construction works, equipment …) and for each of them determine a depreciation period. A property is depreciated over a period of 25 to 50 years, depending on your choice. |
| Can I depreciate a property bought 20 years ago? | You can depreciate your property even if you bought it a long time ago. To do so, you need to declare the actual value. More precisely, the estimated value of your property on the rental date. |
| I have equipment for which I have no invoices. Can I depreciate them? | In this regard, the rule that an invoice is necessary, applies. Nevertheless, you can evaluate this equipment based on their market value, and then depreciate it. Note that you can only do this ONCE at the start of your rental activity. |
| I intend to rent out a furnished property under the ‘Réel Simplifié’. What would be the impact on the resale price, taking into account that I will depreciate it? | The depreciation of the property will not affect the resale price. The added-value at resale is calculated on the acquisition cost and therefore does not take the depreciation into account. |
| Is it possible to enter costs related to the management of my property (travel expenses, phone subscription, laptop, etc.) as expenses? | A charge must be feasible, probable and justified. Once the charges are useful to the operation of the property, and you have the corresponding invoices, you can depreciate them. Most non-professional furnished property landlords have only one property to manage. Thus, permanent use of a laptop is not justified. You can count the phone bills for the months you are looking for clients, but not the entire invoices. |
| I did the construction work by myself in my appartement, are deduct this as charges? | You can deduct the material purchased, but not the time spent on the work. |
| Can I enter the cost of your accounting assistance as charges? | Yes, you can register them as accounting charges. |