LMNP and LMP: Complete Guide to Furnished Rental Status

What are the differences between LMNP and LMP?

These two statuses, although sharing the common basis for renting equipped real estate, are aimed at different investor profiles and offer specific tax advantages and eligibility conditions.

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What is LMNP status?

The status of Non-Professional Furnished Rental Company is particularly suitable for investors who want to start renting furnished without this activity becoming their main activity. Here are a few key points:

• Eligibility : to be eligible, annual rental income must not exceed 23,000 euros or represent more than 50% of the total household income.
• Tax regime : under LMNP status, income is taxed in the Industrial and Commercial Profits (BIC) category, making it possible to opt for the micro-BIC regime (50% reduction on revenue for long-term rentals of furnished accommodation) or the real BIC regime, which allows the deduction of real expenses and the depreciation of the property.
• Benefits : the main advantage lies in the possibility of obtaining optimized taxation, in particular thanks to the depreciation of the property, which can significantly reduce the taxation on rental income.

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What is LMP status?

The Professional Furnished Rental Company, for its part, is aimed at investors who make furnished rentals their main activity and generate significant income (over €23,000). The criteria and benefits are distinct:

• Eligibility : to qualify for LMP status, annual rental income must exceed 23,000 euros, and this income must constitute the majority of the income from activity in the tax household.
• Tax regime : income is also taxed under the BICs, but LMP status entitles you to additional advantages, such as the exemption from real estate wealth tax (IFI), which makes it possible to reduce the payment of additional taxes when the taxable net value of your real estate assets exceeds 1.3 million euros, and the possibility of deducting the deficit generated by the rental activity from the overall income.
• Benefits : in addition to tax advantages, the LMP status offers the possibility of transmitting real estate assets with significant allowances.

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Initial comparison between LMNP and LMP

To better understand the nuances between LMNP and LMP, here is a direct comparison:

• Income Threshold : LMNP is systematic for rental income under 23,000 euros. It is also applied systematically when rental income is less than 50% of household income. LMP status requires exceeding these 2 thresholds of €23,000 and more than 50% of the household's income from furnished rentals.
• Taxation : Both statuses offer tax advantages, but LMP allows an exemption from IFI and the deduction of deficits on global income.
• Transfer of assets : LMP offers advantages for the transmission of real estate assets with favorable fiscal conditions.
• Social contributions : LMP income is subject to social security contributions

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Eligibility requirements for LMNP and LMP

When venturing into real estate investment via furnished rentals, understanding the eligibility conditions for the statuses of Non-Professional Furnished Rental (LMNP) and Professional Furnished Rental (LMP) is necessary. These conditions not only dictate the legal and fiscal framework of your investment but also influence your obligations and benefits. Here is a detail of the general and specific conditions for each status.

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General conditions for both statuses

The LMNP and LMP statutes share certain fundamental eligibility conditions:

• Furniture : the accommodation must be rented furnished. French law defines a minimum list of equipment that must be provided in order for a home to be considered furnished. https://www.service-public.fr/particuliers/vosdroits/F34769
• Activity statement : renters must declare their activity to the INPI to obtain a SIRET number, regardless of the status chosen.
• taxation : the income generated is taxed in the Industrial and Commercial Profits (BIC) category, whether under the micro-BIC regime or the real BIC regime.

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Specific conditions for the LMNP

The LMNP status has specific eligibility conditions:

• Income ceiling : The annual revenue from furnished rentals must not exceed 23,000 euros and must not represent more than 50% of the total income of the fiscal household.
• Non-Professional Status : The furnished rental business should not be registered as the landlord's main professional activity.

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Specific conditions for the LMP

Conversely, LMP status imposes distinct conditions:

• Income Threshold : The annual income must be greater than 23,000 euros, and these revenues must exceed the other professional earnings of your tax household.

NB: Previously, obtaining LMP status also required the registration of a member of the tax household in the Trade and Companies Register (RCS) as a professional furnished rental company. However, following the decision of the Constitutional Council dated 8 February 2018, this condition for registering with the RCS was abolished. From now on, only revenue requirements must be met to benefit from LMP status.

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Tax regimes and implications for LMNP and LMP

Taxation is a decisive aspect of investing in furnished rentals, directly influencing the net profitability of your real estate properties. The statuses of Non-Professional Furnished Rental Company (LMNP) and Professional Furnished Rental Company (LMP) are accompanied by distinct tax regimes, each with its own specificities, advantages, and constraints.

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Tax regime in LMNP

The LMNP status offers two main tax options, the micro-BIC regime and the simplified real BIC regime:

Micro-BIC:

• Lump sum allowance : 50% on rental income for long-term rental properties, with a ceiling of 77,700 euros for 2024. This allowance theoretically covers the expenses, without the need for justifications. The allowances and thresholds differ for short-term rentals: €15,000 threshold, and 30 to 71% reduction depending on the location and the “furnished tourist accommodation” classification.
• Simplicity : this regime is appreciated for its ease of management, ideal for owners with modest rental income.

Real BIC regime:

• • Deduction of actual expenses : allows you to deduct all expenses related to the rental activity (loan interest, work, depreciation of the property and furniture, acquisition costs, etc.).
  • Tax optimization : more complex to manage, it can be very advantageous for owners with high expenses, significantly reducing the tax base to the point of cancelling it most often.

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Tax regime in LMP

The LMP tax regime has specific advantages, especially in terms of deduction of deficits and exemption from IFI:

• Deduction of deficits : the deficits generated by the rental activity can be deducted from the total income of the fiscal household, with no limit on the amount.
• Exemption from IFI : the assets allocated to the LMP activity are exempt from Real Estate Wealth Tax.
• Professional capital gains : capital gains on sales are taxed under the professional capital gains regime, which is potentially more advantageous, especially after a certain number of years of activity.

Detailed comparison of tax regimes

Let's now compare more precisely the tax regimes associated with LMNP and LMP statuses:

• ‍Profitability threshold : the choice between micro-BIC and real regime in LMNP will depend on the real loads. For LMPs, the ability to generate deficits and deduct them from overall income offers a significant advantage for owners investing heavily in renovating or expanding their housing stock.‍
• Management and complexity : the micro-BIC regime is simpler but less flexible. Real regimes (LMNP and LMP) require rigorous accounting but offer superior fiscal optimization.‍
• Long-term implications : LMP offers substantial advantages for the transmission of assets and the exemption from IFI, which can be decisive for long-term investors. When reselling, depreciation deducted in LMP must be included in the calculation of capital gain. It is therefore more interesting to transmit LMP assets rather than to resell them.

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Advantages and disadvantages of LMNP and LMP

Investing in furnished rentals, whether operated under the status of Non-Professional Furnished Rental Company (LMNP) or Professional Furnished Rental Company (LMP), has a range of advantages and constraints. Each status adapts to different investment profiles and objectives.

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Benefits of LMNP status

• Reduced taxation : Even if the micro-BIC regime offers a flat rate reduction of 50% on the income from long-term rental properties, reducing the taxation on rental income, it is most often the simplified real BIC regime that should be preferred.
• Flexibility : the LMNP is accessible even with relatively modest rental income, allowing a wide range of investors to benefit from the status.
• Depreciation : under the real BIC regime, the possibility of depreciating property, work and furniture is a major advantage, making it possible to reduce the tax base.
• Simplified management : fewer administrative and accounting constraints compared to LMP status, making this status attractive for investors who do not wish to engage in a full-time professional activity.
• Capital gains conditions : the regime for capital gains for individuals is more favorable, without taking into account depreciation in the calculation of capital gain on resale.

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Benefits of LMP status

• Deduction of deficits : ability to deduct the deficits generated by the rental activity from the overall income, offering significant fiscal optimization.
• Exemption from IFI : properties dedicated to the LMP activity are exempt from Real Estate Wealth Tax, a significant advantage for large assets.
• Capital gains conditions : the regime for professional capital gains may be more favourable, especially after a certain number of years of activity.

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Disadvantages and limitations of each status

LMNP :

• Income ceiling : the status is limited to investors whose rental income does not exceed 23,000 euros or 50% of household income.
• Complexity of the BIC Real regime : although allowing fiscal optimization, this regime requires rigorous accounting management and support such as Qlower.

LMP:

• Accounting requirements : maintaining accurate accounts, requiring stricter monitoring and the intervention of a real estate tax expert such as Qlower.
• High income thresholds : the need to generate more than 23,000 euros in annual revenue and that these make up the majority of the household's working income.
• Social risks : higher social security contributions (around 35%), or basic package of €1140.

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Decision support: LMNP or LMP, which status should you choose?

The management of the LMNP ceiling (or LMP threshold) must be decided by the experienced investor and not suddenly. To facilitate this decision, we have developed a comparative table that highlights the key characteristics, tax benefits, obligations and eligibility criteria for each status.

Criteria

LMNP

LMP

Yearly Revenues

Less than €23,000 or less than 50% of household income

Over €23,000 and more than 50% of household income

Tax regime

Micro-BIC with 50% discount but most often simplified real BIC regime

Mandatory real BIC regime, with deduction of deficits on global income

Depreciation

Possible under the real BIC regime

Possible, often allowing better fiscal optimization

Deficits

Not deductible from total income

Deductible from total income with no limit on the amount

Exemption from IFI

Not applicable

Exemption possible if the conditions are met

Plus-Values

Taxation according to the regime for individuals (without integration of depreciation)

Taxation according to the professional capital gains regime, which is often more favourable

Accounting Management

Simplified in micro-BIC, more complex but optimized in real BIC regime

Requires accurate accounting and may require the services of a real estate tax expert

Transmission

Fewer specific transmission benefits

Possibility of benefiting from advantageous conditions for the transmission of LMP real estate assets

Answers to your questions about LMNP and LMP

Investing in furnished rentals raises many questions, in particular about the possibility of moving from one status to another between LMNP and LMP. Here is some insight into these points.

Can LMNP and LMP be combined?

• Exclusivity of the statutes: the LMNP and LMP statuses are exclusive of each other within the same tax household. An investor cannot simultaneously be LMNP and LMP for different properties.
• Classification criteria : the classification depends on annual receipts and the proportion of these receipts in relation to the total household income. If the conditions to be considered a professional are met, the LMP status prevails.
• Investment strategy : although you cannot combine statuses for the same investor, it is possible to distribute investments between the members of a tax household, one being LMNP and the other LMP, provided that the criteria specific to each status are respected individually.

How do I switch from LMP to LMNP?

The switch from LMP to LMNP may be desired for a variety of reasons, including a decrease in rental income or a change in investment strategy. Here are the key steps to make this transition:

• Income assessment: make sure that your annual rental income falls below the threshold of 23,000 euros or that these revenues represent less than 50% of your overall income.
• Modification of the declaration: inform the center of public finances of your change of status to update your fiscal and social situation.
• Tax readjustment: review your tax regime (micro-BIC or real regime) according to your new classification and adjust your accounting accordingly.

The transition from one status to another is done retroactively to January 1 of the year of change.

Finally, accounting for income should be considered in proportion to the rental period. Thus, for a property rented for only 1 month, it is the monthly income multiplied by 12 that will be compared to the threshold of 23,000 euros and to the total income of the fiscal household.

Beware of the consequences: be aware of the implications, including the potential loss of some tax benefits associated with LMP status, such as the deduction of deficits from global income and the exemption from IFI.