Furnished rentals: which tax regime to choose to declare your rental income?

Revenues from a letting a furnished property fall into the category of industrial and commercial profits (Bénéfices Industriels et Commerciaux - BIC - in French).

To declare them, you have the choice between two tax regimes: the ‘regime Micro-BIC’ and the ‘régime réel’.

The advantages of the ‘regime Micro-BIC’

The main advantage of the ‘regime Micro-BIC’ lies in its simplicity and speed: in your supplementary income tax return, you only need to enter the amount of gross annual income collected during the year in the box provided.

You will benefit from a 50% tax reduction. The amount you are taxed will be equal to the percentage of the bracket to which you belong, applied to the remaining 50% of your rental income.

In order to benefit from the ‘regime Micro-BIC’, your rental income must be less than €70,000 per year. Businesses can not benefit from this tax regime.

The benefits of the ‘régime réel’

The idea of the ‘régime réel’ is to deduct from your rental income all your expenses and charges as well as the amortization of the property, the equipment and the structural work.

Choosing the ‘régime réel’ is therefore more complex and administratively demanding because you need to keep financial records in order to establish a tax folder (containing balance sheets, a table detailing fixed assets and depreciation, a statement of provisions, etc.) and then upload it to Tax Administration.

But it should be noted that in more than 80% of cases, declaring income under the ‘régime réel’ is more profitable than declaring it under the ‘micro-BIC’, and even allows you to be exempt from tax on your rental income for the first decade!

Conclusion: which tax regime to choose?

If you have bought a property to get started in the furnished rental market, it would be more beneficial to declare your rental income under the ‘régime réel’ because you can, when you first declare, deduct notary fees, agency fees or even loan interest and depreciation of the property, as well as all equipment and any work that has been done.

However, if it is a property that you have inherited, or that you have held for a long time, it may be that the ‘regime micro-BIC’ would be more beneficial, as the amount of charges and expenses linked to your non-professional furnished rental activity may be less than 50% of your rental income that year.

Good to know: you can change tax regime whenever you want, but know that the chosen plan is for one year and is tacitly renewable.