Choosing between LMP or LMNP ?
The main difference between LMP and LMNP lies in the social taxes :
LMP : 29 up to 54% of net income is collected.
LMNP : only 17,2% of net income is collected.
In order to better understand the difference between LMP and LMNP, one should know the signification of each :
LMP Furnitured Professional Rental. If your net income exceeds 23 000 € / year AND that this amount is superior to your other professional incomes then you are subject to LMP. The two conditions need to be met.
LMNP Non Professional Furnitured Rental : applies if you don't meet the two conditions mentioned above.
If you forecast a furnitured rental, then read this article further : we explain how to substract several costs from your taxes and thus make it easier to refund you real estate credit. Indeed, credits rised from 1,06% in 2021 up to 4,24% in 2023 in France. However, the LMNP allows you to substract up to 90% of your rental project's costs !
Why choose LMNP ?
Investing in real estate may seem though but it is certainly the most easy type of project to return on investment. Especially in the case of furnitured rental : rent of a furnitured housing costs higher than an empty one. It is on average two times more profitable.
With LMNP, rents suffer less tax thus net income is superior and eases the refund of your credit because you avoir the higher social taxes (compared to LMP)LMNP is the way to go from our point of view.
Choice of tax systeme for LMNP
In order to rent with LMNP, you will have to register as a lessor at the official business counter. You can choose between two tax systems ::
- The Micro BIC system : if your rent incomes don't exceed 77 700 € per year.You can benefit from 50% tax reduction which makes accounting easier (30% for seasonal rent in specific areas).
- The Real system you can substract all costs related to your real estate rental (credit interests, property tax, construction bills...). You need to show proof of all these costs.
Which tax system should you choose ?
Costs related to your rental are superior to 38 850 € / year : opt for Real system.
Costs related to your rental inferior to 38 850 € / year : opt for micro BIC system..
| Que permet de déduire le régime réel ? | ||
|---|---|---|
|
Acquisition
|
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notary honoraries
|
real estate agency costs
|
credit interests and application fees |
|
Maintenance |
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|
construction and renovation |
furniture |
small repairs (plumbing) |
|
Regular fees |
||
|
property tax, lessor insurance
|
co-ownership costs, accounting exper (if you hire one).
|
property tax for companies
|
|
Other costs |
||
|
les frais d’électricité, de gaz et d’eau et divers abonnements tels que la wifi (s’ils ne sont pas à la charge du locataire) |
groceries for seasonal rent (toilet paper, salt, washing products...), transportation costs.
|
advertising costs, juridic costs in case there is a conflict with a tenant |
With this much reductions, this tax system is way more interesting. It requires a bit more handling because you will have to keep all cost proofs in order to share them when declaring.
How to substract tax with LMNP ?
1 Substract your costs
Three scenarios :
- If the amount of money made i superior to your costs than you will have to show proof of all costs when declaring to the URSSAF.
- If the money made is equal to your costs then tax does not apply.
- If the money made is inferior to the costs then you're creating a "property deficit" (loss). This loss can be substracted when you will make profit in the 10 following years !
Example in the third case : you have a 20 000 euros loss on the first year but you make 10 000 euros profit on the second and third year : you can substract the 20 000 loss on and thus avoid tax.
2 Benefit from amortizations
An amortization stand for the loss of value of a good through time.Amortizations never expire. pas de date de péremptionThus you need to use them whenever your rental starts making profit.
What costs are considered amortizations ?
Be aware : some cost types are similar to the ones mentionned before but you can only use them as amortizations or direct substractions. Here's a list :
- 70 up to 90% of the acquisition price of the housing.
- Construction work
- Furniture and equipment
Usually, it is interesting to not substract major construction work : it is better to amortize if the costs are expensive. For instance on 100 000 € construction work, you can amortize 2 000 euros per year for the following 50 years.
Write your LMNP declarations
When you declare as an LMNP with the Real tax system, you need to prove all costs. The URSSAF requests an accounting EDI audit which includes your amortization plans and all proofs of payments. You may need to hire an accountant (for about 1 000 € a year) or proceed on your own with an accounting software (on average 300 € a year). Reminder : these costs can be substracted from tax.
Start your LMNP
So you feel ready to launch your LMNP activity with all this knowledge ? Well wait a second and check the following points to avoid any bad surprise :
Verifications
- For seasonal rentals : ask the co-ownership and the town hall if there are specific conditions for your location. Sometimes there can be restrictions.
- See if you qualify for funds the french government could help you finance your project, lear more in our article "invest in real estate at Cannes".
- Register your activity on formalites.entreprises.gouv.fr website in the 15 days after purchasing the housing. You should fill in the purchase date as the date where you started your activity.Otherwise you won't be able to amortize nor substract the housing's purchase.
Material
In order for your housing to be considered as furnitured, you will have to buy the following equipment ::
- Storage (closets or shelves)
- Curtains or shutters for the bedroom's windows
- A bed with blanket and pillow
- Lightning (lamps, spots)
- Hotplates and a oven (or microwave)
- A refrigerator with a freezer part
- Tableware and cooking tools
- A table and some chairs
LMNP rental strategies
| Stratégies de location | Strengths | Drawbacks |
|---|---|---|
|
Seasonal rental only.Ideal for cities with holding events (Cannes, Paris...) |
Ask for higher rent. |
More time consuming and you will have to search for new tenants regularly. Sometimes it is woth leaving these tasks to a real estate agency. |
|
Long term rental only.Ideal for non touristic locations. |
Easy to handle alone.
|
The rents are lower than seasonal ones. |
|
Rent during school periods to students and to tourists during the summer.Ideal in touristic surrounded by schools (Aix, Marseille...) |
Insure a regular income most of the year and make high profits when the askers are present.
|
Finding a student that agrees to this schedule. Search and handle the seasonal tenant during the summer. |
Our real estate agence Amanda Properties practices seasonal rental on the French Riviera and mostly in Cannes. We take care of creating and advertising your housing on over 80 real estate research websites. Moreover, we only select serious tentants and take care of services (laundry, garden care...)
Most lessors that are part of our clients choose seasonal rental over long term because the French Riviera holds major events such as the MIPIM and Film festival. Some are able to make the equivalent of a year of long term rent in only a week !
Benefits when selling
If you decide to resell your housing as an LMNP, you will have to pay 19% tax on the benefits however you can substract all the construction costs a second time ! If you own the housin for more than 5 years, you'll benefit of 6% reduction ( on the total tax amount) and this piles up until 22 years where you will have 0% tax to pay.
Our last advice ? Visit this website https://www.jedeclaremonmeuble.com/ which will help you with administration.
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