LMNP: how does depreciation work?

What is amortization in LMNP?

Depreciation in LMNP is based on the principle of recognizing the depreciation of real estate and movable assets over time. Concretely, it makes it possible to reduce the taxable amount of the rent received by deducting part of the cost of buying the property and its furniture components, spread over several years. This practice, authorized by the real tax regime, transforms initial expenses into staggered tax cuts, thus optimizing the profitability of the investment while more accurately reflecting the natural wear and tear of assets.

• Fundamental principle : depreciation represents the loss of value of a property and its contents (furniture, equipment, decoration) over time, due to wear, age or obsolescence.
• Fiscal impact : It makes it possible to fictitiously deduct this loss in value from the rental income received, thus reducing the tax base and the tax due.

Depreciation calculation:

• The purchase value of real estate and furniture is spread over their estimated lifespan (generally 20 to 50 years for real estate and 5 to 10 years for furniture).
• Each year, a fraction of this value is deducted from rental income as depreciation.

Practical application:

• For an apartment purchased at 200,000 euros (excluding land), with an estimated average lifespan of 40 years, the annual depreciation is 5,000 euros per year (200,000/40).
• If the annual rental income is 12,000 euros, amortization reduces the tax base to 7,000 euros (12,000 — 5,000).

Key Takeaways:

• Depreciation does not apply to the value of the land, which is considered to be unalterable over time. The value of the land is excluded from the calculation base.
• In the event of a deficit generated by amortization, it can be carried over to the following years for 10 years, offering increased fiscal flexibility.
• The option for the real tax regime is necessary to benefit from depreciation in LMNP.
• From 2024, the government plans to reinstate depreciation previously deducted when calculating the gain on resale for properties operated for short-term rentals.

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Why is amortization key in LMNP?

Depreciation in LMNP (Non-Professional Furnished Rental Company) is more than just an accounting tool; it is a decisive fiscal strategy for investors looking to optimize their rental income. This technique offers several advantages that make amortization essential in the fiscal management of furnished rentals.

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Reducing the tax burden:

• By allowing the depreciation value of real estate and furniture to be deducted, depreciation directly reduces taxable income, and therefore, the tax due.

example : For a rental investment generating 15,000 euros in annual income and a depreciation of 5,000 euros, the taxable income is reduced to 10,000 euros, thus reducing the income tax that will be subject to the taxpayer's TMI (Marginal Tax Rate) and to the CSG CRDS to 17.2%.

Stabilization of income net of taxes:

• Depreciation smooths tax results over several years, providing greater predictability and stability in after-tax revenues.
• Tax savings achieved through amortization can be reinvested or used to cover other expenses related to real estate investment.

Optimization of the profitability of the investment:

• By reducing the tax base, depreciation improves the net return on investment, making LMNP more attractive compared to other forms of real estate investment.
• The tax savings generated potentially makes it possible to carry out energy renovation or improvement works, increasing the value of the property and its future profitability.

Flexibility and tax planning:

• Depreciation can create a fiscal deficit that can be carried over to rental income in subsequent years for 10 years, offering flexibility in tax management.

Things to consider:

• The option for the real regime is necessary to benefit from depreciation, requiring more rigorous accounting management.
• Depreciation can influence the calculation of real estate gain upon resale, an element to be anticipated in the investment strategy.

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Assets affected by depreciation

Not all goods are equally eligible for this practice. Identifying the assets affected by depreciation is necessary to maximize the tax benefits of your LMNP investments. Here is a detailed overview of the types of assets likely to benefit from depreciation and the specificities to take into account:

Real estate eligible for depreciation:

• Depreciation mainly applies to furnished accommodations rented, including The apartments, the houses and sometimes some service residences (student residences, nursing homes, tourist residences, etc.).
• The amortization period for buildings is generally set between 20 and 50 years, depending on the nature and quality of the construction.

Equipment and furniture:

• Les furniture and equipment (household appliances, heating systems, etc.) benefit from a shorter amortization period, typically 5 to 10 years.
• The costs of equipping the home with furniture necessary for the furnished rental are fully depreciable.

Exclusions and particularities:

• The value of land associated with real estate is not depreciable, being considered not to depreciate over time.
• Work to improve or renovate the property may also be amortized, as long as it adds lasting value to the property and is not considered routine repairs.

Key points to consider:

• The amortization base includes the purchase price of the property, plus ancillary costs (notary and agency fees on option) and the cost of improvement work, minus the value of the land.
• Notary fees and agency fees can be charged in full during the first year of acquisition.
• In the case of a property acquired and rented furnished several years after its acquisition, the depreciation base to be used will be the market value of the property at the time it was rented out.
• The amortization calculation must be meticulously planned and documented, often requiring the assistance of a specialist LMNP expert.

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Advantages of depreciation in LMNP

Depreciation in LMNP offers rental investors a set of significant advantages, in particular in terms of tax reduction, tax optimization, and impact on the profitability of real estate investment. This strategy, well understood and properly implemented, can transform the way rental income is collected and managed, offering a better after-tax profit margin.

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Tax reduction and tax optimization

• Depreciation reduces taxable income by deducting the depreciation value of the property and its furniture, thus reducing income tax.
• Reducing taxes improves the cash flow available to the investor, allowing reinvestment or accumulation of reserves.

Impact on the profitability of real estate investment

• By reducing the tax due, depreciation increases the net return on the investment, making LMNP more attractive compared to other investment options.
• The effect of depreciation extends over the life of the asset, offering a lasting advantage over several years, in contrast to one-off tax cuts.

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Practical cases: before and after amortization

Without amortization:

• Annual rental income: 20,000 euros
• Tax (estimate) without depreciation: 4,000 euros
• Net return: 16,000 euros

With amortization:

• Annual amortization of goods and furniture: 6,000 euros
• New tax base: 14,000 euros (20,000 — 6,000)
• Reduced tax (estimate) with amortization: 2,800 euros
• Improved net return: 17,200 euros

Analysis of the results:

• The example above illustrates how amortization can increase net returns by 1,200 euros per year, significantly improving the profitability of the investment over the long term (+7.5% per year).
• Depreciation in LMNP is not only an immediate saving; it is a fiscal strategy that optimizes returns on investment over the life of the property.

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Who can benefit from LMNP amortization?

To fully benefit from the benefits of LMNP (Non-Professional Furnished Rental Company) depreciation, it is important to understand the eligibility conditions for LMNP status as well as the associated exceptions and limitations.

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Eligibility requirements for LMNP status

• The property must be rented furnished. The legislation defines a number of essential amenities that must be provided in order for the home to be considered furnished.

A precise list given by the Government has been fixed for several years and is available here: https://www.service-public.fr/particuliers/vosdroits/F34769

• Annual rental income must not exceed 23,000 euros and be higher than other fiscal household income.
• To benefit from depreciation, the LMNP must opt for the real tax regime, which allows depreciation and real expenses to be taken into account. The real choice is made duringSIRET registration or upon exercise of an option before 31 May of the financial year in question.

Exceptions and limitations

• The value of the land associated with the property is not depreciable, as it does not depreciate over time.
• Deficits generated by depreciation can only be attributed to profits of the same nature (non-professional BIC) and carried over to the following 10 years.
• If rental income exceeds the established thresholds, the investor can automatically switch to the status of Professional Furnished Renter (LMP), with tax rules and different social security contributions.
• Although depreciation is a powerful deductible load, certain expenses such as loan interest or repair and maintenance expenses may have specific imputation rules.

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Depreciation details for LMNP assets

Depreciation for properties in LMNP (Non-Professional Furnished Rental Company) is a fundamental aspect of the tax strategy for real estate investors. However, to take full advantage of these benefits, it is important to understand the amortization period, the eligible calculation methods, and the reporting procedure.

Depreciation period and calculation methods

• The amortization period of buildings is generally estimated between 20 and 50 years.
• For furniture and equipment, this period is shorter, typically 5 to 10 years.

Calculation methods:

• Linear : the most common method, where the depreciation amount is distributed equally over the estimated period of use of the asset.
• Degressive : less common in LMNP, this method allows for tax-deductible depreciation that is greater in the first years and decreases over time.

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How to report depreciation

Choice of the real tax regime:

• The amortization statement is exclusive to the actual regime. This choice must be expressed when filing the first rental income tax return or during a change of regime.

Completing the 2033 declaration:

• Depreciation is declared on form 2033 for non-professional BIC (Industrial and Commercial Profits).
• The statement must include details of depreciation calculated for the fiscal year, as well as the accumulation of previous depreciations.

Documentation and rationale:

• It is imperative to keep detailed and justified accounts of depreciation calculations, in case of a request from the tax authorities.
• The documentation should include the cost of acquiring the property, ancillary costs, and the calculation of the annual depreciation value. In the case of a selected market value, the base value must be documented.

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FAQ - LMNP amortization

Understanding how depreciation works in LMNP can ask investors a lot of questions. This important aspect of taxation for non-professional furnished rentals offers significant advantages, but implementing it can sometimes seem complex. Here are answers to some of the most frequently asked questions:

Can you depreciate an asset purchased several years ago?

Yes, it is possible to depreciate property acquired several years ago. Depreciation can be calculated retroactively from the date of purchase of the property or from the start date of the rental at market value, whichever is more fiscally advantageous, with a possible carry-over of unused depreciation to subsequent years.

How to manage a depreciation deficit?

• Deficits generated by depreciation can be carried forward to rental income in subsequent years, but they are not attributable to overall income.
• This deferral is limited to income of the same nature (Non-professional BIC) and can be carried out over a period of 10 years.

What is the difference between amortization and deductible expenses?

• Depreciation : it represents the theoretical loss of value of a property and its contents (furniture, equipment) due to wear and tear or obsolescence. Depreciation is a non-monetary expense that reduces the taxable base of rental income over the estimated life of the property.
• Deductible expenses : they are real and monetary expenses incurred for the management, maintenance and operation of the rental property. They include repairs, management fees, loan interest, etc., and are deductible from the tax base in the year they are paid.