Tax reduction on income through real estate investments

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Detaxation in france always implies to invest in properties that will be available to rent for a minimum legal period. In addition, each device poses specific conditions relating to the assets, the commitment period, or the receiving of the tax exemption. We’ll speak here ofseveral French  laws : Duflot, Malraux, Girardin, but also of fiscal REITs (French SCPI) which enjoy the same benefits without suffering stress management.

The Pinel law

The tax benefit of the Pinel law

The tax benefit to the investor is 18% of the amount invested within an investment ceiling of €300,000 (including legal fees).

The maximum amount of the granted reduction is therefore €6,000 per year.

Conditions of application

Housing covered by the Pinel law are buildings already constructed or sold off-plan (sale in a state of future completion). In all cases, these are new homes. Certain standards for energy efficiency of the building must also be met.

The purchaser, in order to benefit from the tax advantage of the Pinel device, must rent his apartment to a tenant as a primary residence for 6,9 or 12 years.

The resources of the tenant and the rent will be capped.

Only certain areas are affected by this device.

The Real Estate Giradin law

The Girardin device follows the logic of the Duflot device but regards buildings located in overseas counties and homes.

The tax benefit

The Girardin device grants a tax reduction between 22% and 38% of the investment amount.

This reduction, spread over 5 years, is capped at €18,000. This device does not fit into the new tax loopholes cap.

Conditions of application

This device relates to new buildings located in the overseas counties and territories (DOM TOM).

The purchaser, in order to benefit from the tax advantage of the Girardin device, must rent his apartment to a tenant as a primary residence for at least 5 years (6 years under the intermediate Girardin device).

The Malraux law

The operation of the Malraux device differs from that of the other tax-efficient devices. Indeed, the tax reduction is not proportional to the amount of investment, but to the restoration work amount carried out during the tax year.

The tax benefit

The tax benefit differs depending on the location area of the restored property:

  • 30% of the restoration work amount for buildings located in Protected Area
  • 22% of the restoration work amount for buildings located in Protected Zones (Zone of Protection of Urban or Landscape Architectural Heritage – “ZPPAUP”)

These reductions are applicable to the limit of €100,000 of restoration work carried out during the tax year.

Conditions of application

The property must be located in Protected Area or in ZPPAUP .

The investor is required to restore the whole building and rent it for 9 years.

The Prefect must, before the beginning of work, issue a special authorisation. The work will then be followed by the architects of the Buildings of France (Bâtiments de France).

Historical Monuments law

The Historical Monuments law concerns the restoration of grade listed real estate.

The tax benefit

This law allows to deduct the amount of the restoration and maintenance on property income, and on the total income of the investor.

This deduction has no ceiling amount. It can therefore help reduce taxation on all income.

In addition, it allows an exemption from inheritance tax at the time of transmission of the building.

Conditions of application

The building must be ranked as « Historical Monument » or an equivalent.

The investor must hold the building for at least 15 years, and it must in some ways open to the public to qualify for the 100% reduction of total income.

The fiscal REITs (French SCPI)

Buying a REITs is to acquire a share of a company that invests in real estate. These investments may be made under a law of tax exemption, and therefore benefit the subscriber.

The tax benefits

There are three types of fiscal REITs: Malraux, Duflot, Property Deficit (Déficit Foncier).

Each type of REIT allows the investor to benefit from the same tax advantages as those attached to the law in question.

  • Duflot: deduction of 18% of the amount invested over 9 years
  • Malraux: 22% or 30% of the amount of work
  • Property deficit: net deficit on property income and overall income capped at €10,700 per year.

Why choose a REIT?

REITs allow the investor to remove itself from management constraints.

They also allow a minimum investment dramatically lower than that required for direct real estate investment.

Finally, they allow through diversification to reduce the risks inherent in all tax efficient real estate transactions.

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