Some owners manage to neutralize the taxation of their rents for several years thanks to a tax mechanism that is still little known. Contrary to popular belief, this is neither a fraud nor a privilege reserved for large assets. Real estate taxation provides for several measures to reduce, or even temporarily neutralize, the taxation of rental income. An important nuance: these mechanisms do not eliminate the taxpayer’s tax or their marginal tax rate. They only act on the way rents are imposed.
The surprise is often brutal for investors who discover their first tax declaration. Because the rents received do not always correspond to the actually available income. Between loan repayment, property tax, co-ownership charges, works and taxation, profitability can quickly disappear. “When you receive rent, it is taxed according to your marginal tax bracket and then subject to social security contributions. This is why many owners have the impression of being heavily taxed”explains Claire Guénault, AMF approved asset manager.
LMNP: how certain landlords neutralize the taxation of their rents
One of the main optimization levers is based on the status of non-professional furnished rental company (LMNP) declared in real regime. Unlike the micro-BICwhich applies a flat-rate reduction on rents, the real regime allows the charges actually incurred to be deducted and a portion of the property, furniture and certain costs linked to the acquisition to be depreciated. In certain cases, this mechanism is enough to neutralize the taxation of rental income for several years. “In my personal case, the depreciation allows me to neutralize the tax on rents for around fifteen years”explains Claire Guénault.
This situation is not automatic, however. The period during which a lessor can reduce the taxation of his rental income depends in particular on the purchase price of the property, the amount of notary fees, any work carried out, the value of the furniture acquired, the duration of the credit and the level of rent received.
For the asset manager, this regime takes on its full meaning when the investor is still repaying his loan. “Many owners have a loan, property taxes and utilities. They sometimes only generate a few dozen euros of profit per month. However, without optimization, they can find themselves paying tax on rents which are essentially used to repay their financing”she observes.
However, this strategy is less suitable for investors who plan to resell quickly. Since the reform came into force in 2025the depreciation deducted under the LMNP is now reintegrated into the calculation of the capital gain.
The land deficit, a tool primarily intended for properties to be renovated
Another lever well known to investors: the land deficit. Reserved for unfurnished rented accommodation, it allows certain charges and certain works to be deducted from property income. Roofing, boiler, plumbing, facade renovation, energy work, replacement of windows or renovation of a bathroom can be included in the system.
Conversely, expansion or reconstruction work remains excluded. “The construction of a veranda, the creation of a floor or the complete reconstruction of a property does not fall into the land deficit”recalls Claire Guénault.
Concretely, an owner who realizes 30,000 euros of eligible work while receiving 10,000 euros of rents generates a land deficit of 20,000 euros. This deficit can be charged against the overall income within the limit of 10,700 euros per yearthe surplus being able to be carried over to the land income of subsequent years. Certain energy renovation work also allows you to benefit from an increased ceiling.
Tax optimization does not replace a good investment
There are two dimensions to take into account: do I rent unfurnished or furnished, then do I declare in reality or at the reduction?summarizes Claire Guénault, recalling that these choices largely determine the future taxation of investment.
The question is not only how to reduce the taxation of rents, but to determine whether the investment is relevant. “Many confuse tax optimization and enrichment. I prefer a client who pays a little tax with an excellent investment rather than a client who pays no tax with a bad asset”concludes the specialist. In real estate, optimizing the taxation of an investment never compensates for a bad purchase.
