In summary
| 📂 Section | Description |
|---|---|
| 🛠️ Recurring expenses | Expenses related to operating the property, such as joint ownership fees, repairs, and local taxes. |
| 💼 Financial charges | Costs related to financing the property, including loan interest, banking fees, and insurance. |
| 🏡 Depreciation | Allocation of the depreciation of the real estate and furnishings over several years. |
| 📊 Charge optimization | Consulting with an accountant to maximize deductions and optimize tax management. |
The status of Non-Professional Furnished Landlord (LMNP) allows benefiting from attractive tax advantages. Among these, the possibility to deduct certain charges is a major asset for reducing tax on rental income. Let’s explore together the deductible expenses and how to optimize your tax situation in LMNP.
1. The current expenses in LMNP
Current expenses in LMNP (Non-Professional Furnished Landlord) encompass all recurring expenses related to the operation of the real estate property. They are essential to maintain the quality of the property and ensure its long-term rental profitability. These charges must be supported by invoices and incurred in the interest of the rented property.
Types of current charges
Current charges are divided into several essential categories, including the following examples:
| Type of charge | Examples |
|---|---|
| Shared ownership fees | Maintenance costs for common areas, management fees |
| Repair and maintenance expenses | Plumbing work, electrical work, minor repairs |
| Management fees | Rental management fees, accounting |
| Local taxes and levies | Property tax, CFE (business property contribution) |
Detailed explanation
- Shared ownership fees: If the property is located in a co-ownership, the LMNP owner will need to contribute to the costs of maintaining common areas (stairs, elevator, green spaces). These fees also include management fees of the syndic, which manages the co-ownership administration. These charges are essential to ensure quality of life in the building and can even influence tenant satisfaction.
- Repair and maintenance expenses: These expenses concern work necessary to keep the property in good condition. This includes occasional repairs such as plumbing, wiring, or cosmetic touch-ups after minor damages. The goal is to extend the lifespan of the property while maintaining optimal comfort for tenants.
- Management fees: If the property management is entrusted to an agency, management fees are deductible. These cover administrative tasks such as finding tenants, drafting leases, and collecting rent. Additionally, expenses related to bookkeeping of the property can also be deducted if you hire an accountant to handle your LMNP tax aspects.
- Local taxes and levies: Taxes like property tax or CFE (business property contribution) are significant expenses for an LMNP owner. These taxes are directly linked to property ownership and are considered deductible charges, which helps to reduce the taxable base.
Why are these costs important?
Current charges are essential for the sustainability of the real estate investment. By keeping the property in good condition, you guarantee its rental value and market appeal. Well-maintained property helps to foster tenant loyalty, reduce turnover, and avoid periods of vacancy.
2. Deductible financial charges in LMNP
Financial charges are significant expenses for LMNP investors. They primarily concern costs related to the acquisition financing and property management. These fees are deductible from rental income, thereby reducing the taxable base and easing the tax burden.
Types of deductible financial charges
| Type of expense | Examples |
|---|---|
| Loan interest | Interest on a property loan |
| File fees | Opening and management fees for bank files |
| Insurance | Non-occupant owner insurance, rent guarantee insurance |
Detailed explanation
- Loan interest: When you finance a property purchase with a loan, the interest on this loan is deductible. This is a substantial expense, especially if the loan has a long term. Deducting interest significantly reducing taxable income, which is a major benefit for LMNP owners. The higher the interest amount, the greater the deduction, which improves the net profitability of the property.
- Bank file fees: Opening and managing fees for the mortgage are also deductible. These include setup fees for the loan application, insurance costs related to the loan, and guarantee fees (hypothec or surety). Since these expenses are directly related to financing the property acquisition, they are considered legitimate charges to deduct.
- Insurances: Insurances play a key role in protecting the owner against various risks. The main deductible insurances are:
- Non-occupant owner insurance (PNO): This protects the property against specific risks (fire, water damage, etc.) when unoccupied. It is essential for LMNP owners to secure their assets.
- Rent loss insurance: It covers the owner in case tenants fail to pay rent. By subscribing to this insurance, you can limit financial risks while deducting the premiums from your rental income.
Why are these financial costs important?
Financial charges are inevitable when financing a property in LMNP, but they also offer a significant tax advantage. Deducting loan interest and related fees allows you to reduce your taxes while funding your property project.
By deducting these costs, you optimize your property’s management by lowering fiscal costs associated with operation. This helps to increase the net profitability of your investment by minimizing the impact of expenses on your rental income.
3. Depreciation in LMNP
Depreciation is a specific accounting mechanism in the LMNP (Non-Professional Furnished Landlord) regime that allows spread over time the depreciation of the real estate and furnishings. Unlike current charges or financial expenses, depreciation does not correspond to an immediate expense but to accounting for the loss of value of certain elements of your investment over the years. This device is particularly advantageous because it helps to reduce taxable rental income while maintaining the overall profitability of your investment.
Elements that can be depreciated in LMNP
| Depreciable elements | Depreciation duration | Examples |
|---|---|---|
| Real estate | 20 to 30 years | Value of the property |
| Furnishings | 5 to 10 years | Bed, sofa, household appliances |
| Improvement works | 10 to 12 years | Bathroom or kitchen renovation |
Detailed explanation
- Real estate: The purchase value of the property can be amortized over a period between 20 and 30 years, depending on the nature of the property. This depreciation corresponds to the gradual loss of value of the building, taking into account natural deterioration and aging. This long depreciation period allows you to reduce taxable rental income each year without requiring additional expenses. By depreciating the value of your property, you optimize your tax situation while maintaining an attractive long-term return.
- Furnishings: Furniture, including items such as the bed, sofa, or kitchen equipment, are depreciated over a shorter period, usually between 5 and 10 years. Since these elements have a shorter lifespan than the property itself, their depreciation is faster. This allows you to immediately reduce taxable income from the early years of operation. Purchasing furnishings can thus be tax-efficient for LMNP owners.
- Improvement works: Renovations such as refurbishing a bathroom or kitchen are also amortizable. The depreciation duration for these works is generally between 10 and 12 years. These improvements increase the property’s value while allowing you to reduce taxes on the rents received. Depreciating improvement works is a valuable lever for maintaining and enhancing your property while benefiting from tax advantages.
Why is depreciation advantageous?
Depreciation is a powerful method to optimize your LMNP tax situation. Unlike immediate deductible expenses, it allows to smooth out over time the effects of asset depreciation on your taxable income. By deducting a part of the property’s and furnishings’ value each year, you reduce your taxable income while maintaining healthy cash flow, as these are not cash outflows.
One of the major benefits of depreciation in LMNP is that it cannot create a tax deficit. In other words, if your expenses exceed your rental income, you cannot use depreciation to generate a deficit. However, unused depreciation can be carried forward indefinitely, allowing you to deduct it in future years when your activity generates a profit.
