As I explained in my previous article Furnished rentals: the advantages of the Micro-BIC system, revenue from furnished rentals are taxed as Industrial and Commercial Profits (BIC), which is fiscally a lot more advantageous. After having considered the advantages of the Micro BIC system, mainly that it is easier to use, I’d also like to discuss the advantages of the simplified réel system which is often more favorable to non-professional landlords or furnished rentals…
How are rents taxed with the réel system?
The main advantage of the réel system is the fact that as well as deducting the expenses from your activity as a landlord of a furnished rental, you can also amortize the property, the furniture and the appliances..
The deductible expenses with the réel system are:
- Solicitor’s fees and the agency fees when the property has been bought the same year that it was rented out as a furnished apartment
- the interest on the loan and the administrative fees
- the accounting fees
- the insurance fees
- the management fees
- the costs of proceedings in the case of litigation with the tenant
- the price of the appliances (washer, small appliances etc.)
- the cost of maintenance and repairs
- the real estate tax
Are tax deductible with the réel system:
- housing (off-site): for the first few years the average rate of depreciation will be 2.5% and then will fall over the following years
- construction work
Good to know: The amortizations generated by your activity as a landlord of a furnished rental will not be able to contribute to a deficit, but they will be carried over to the following years… so that you won’t have to pay taxes on your furnished rental activity for a few years. This is the major advantage of the réel system.
A few administrative obligations…
Contrary to the Micro Bic system, the accounting and declaration obligations of the réel system are quite constraining.
You need to establish a record of revenues and expenses or a record of fixed assets.
Then you need to draw up a tax report with the following documents:
- a simplified balance sheet
- a simplified income statement
- a table with fixed assets, amortizations and other factors subject to tax arrangements for capital gains and losses
- a statement of provisions, special depreciation allowances and tax losses carried forward
- a table showing the added value produced during the fiscal year
Once this tax report is finished, it should be declared online to the tax centre. If you choose to declare your taxes by mail, there is a 0.2 % increase in fees.
Even if the adminstrative stages of the réel system seem quite contraining you don’t have to use a professional accountant. In fact here are online services like jedeclaremonmeuble.com that can help guide you through declaring your taxes.
How to benefit from the réel system ?
If the annual income from your activity as a landord of a furnished rental is over 32,000€ (which should increase to 70,000€ with the finance bill for 2018), the réel system will apply to you.
If your income is below this threshold, you can still declare your rental income with the réel system. There are two possible scenarios:
- if it is your first year of activity, you can exercise the option until you file your tax return ;
- if not, you can exercise your option before the 1st February of the year in which you would like to declare your taxes with the réel system (for example to declare your 2018 revenue with the réel system, you should do so before the 1st February 2018).
This option lasts a year and is automatically renewable from one year to the next.
Although complicated to use, in 85% of cases the réel system has more tax advantages that the Micro Bic system for declaring revenue from furnished rentals. It is important to weigh up the two options. To help you choose the best tax system for your, jedeclaremonmeuble.com has a free online simulator.