Understanding to Optimize in 2025 Understanding LMNP taxation in 2025

The importance of choosing the tax regime in LMNP

The choice of the tax regime is a decisive decision for any investor in LMNP (Non-Professional Furnished Rental Company), as it directly influences the financial management of your rental properties as well as your annual tax burden. This strategic choice should be made taking into account not only annual revenue, but also the long-term goals of your real estate investment. Here is why it is important to choose wisely between the two main tax regimes available: the micro-BIC and the simplified real regime.

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The micro-BIC regime

The micro-BIC regime (industrial and commercial benefits) is specially designed to alleviate the administrative burden for renters by offering a simplified tax calculation.

Calculation of the rebate and tax implications

The micro-BIC regime allows renters to benefit from a flat rate reduction of 50% on their rental income (long-term rental) and reduced to 30% for short-term rentals. This means that only half or 70% of your rental income is subject to taxation. This allowance is designed to cover all expenses related to the operation of the furnished rental, so no other deduction is necessary.

Example of calculation:

Suppose that you receive 20,000 euros annually in rent from your furnished rental under the micro-BIC regime. The lump-sum allowance applies as follows:

• Rental income: 20,000 euros
• Abatement (50%): 10,000 euros
• Taxable income: 10,000 euros

This allowance considerably simplifies tax reporting, as it relieves the lessor from justifying actual expenses and from rigorous accounting, which can be particularly beneficial for those who have expenses less than or equal to 50% of revenue.

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Advantages and limitations of micro-BIC

Advantages:

• Ease of management is one of the main advantages of micro-BIC. Rental companies do not need to keep detailed accounting of expenses.
• The 50% reduction automatically reduces the tax base, which can significantly reduce taxes due, especially if the actual expenses are lower than this percentage.
• With the micro-BIC, owners can more easily predict their tax burden since the allowance is fixed.

Boundaries:

• This regime is limited to owners whose annual income does not exceed 77,700 euros in conventional LMNP. Beyond this threshold, the simplified real regime becomes mandatory.
• If your actual expenses exceed 50% of revenue, you may be at a disadvantage because you cannot deduct them in full.
• Contrary to the real regime, micro-BIC does not allow real estate or equipment to be depreciated.

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The simplified real regime

For investors in LMNP (Non-Professional Furnished Rental Company) whose rental activities generate high income or who have substantial expenses, the simplified real regime offers significant flexibility and opportunities for tax optimization. This regime allows for more accurate tax management through the deduction of real expenses and the depreciation of real estate.

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Deduction of real expenses and depreciation of the property

Under the simplified real regime, owners can deduct all the actual expenses related to the operation of their real estate. This includes not only ongoing costs such as management fees, condominium fees, and maintenance expenses, but also significant loan interest and renovation costs.

Depreciation:

• The amortization of the purchase price of the property can be spread over a typical period of 20 to 50 years, reducing the annual tax base.
• Equipment and furniture can be depreciated over a shorter period of time, generally 5 to 10 years, depending on their estimated lifespan.

Application example:

Let's imagine a property purchased for 300,000 euros with furniture and equipment valued at 30,000 euros. Depreciation could be structured as follows:

• Real estate: 300,000 euros amortized over 30 years = 10,000 euros per year.
• Equipment: 30,000 euros amortized over 7 years = approximately 4.285 euros per year.

This amortization strategy turns high initial expenses into spread tax deductions, thus reducing the tax due each year.

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The advantages and limitations of the simplified real regime

Advantages:

• The ability to deduct all actual expenses and amortize property and equipment offers considerable tax savings potential.
• Adapted to owners with high expenses or high value assets, this regime allows tax planning that is more adjusted to the economic realities of each property.
• The deficits generated can be carried over to the profits of the following years, offering long-term fiscal management.

Boundaries:

• The need to keep detailed accounts and justify all expenses.
• For this regime to be advantageous, the deductible expenses must be high enough to exceed the standard micro-BIC allowance.
• Rigorous monitoring of depreciation and expenses often requires the assistance of an LMNP expert.

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How do I declare my LMNP income?

The declaration of income from non-professional furnished rentals (LMNP) varies according to the tax regime chosen (micro-BIC or simplified real).

Micro-Bic: the steps to declare your LMNP income

Here are the boxes to fill in according to your Micro BIC situation:

1. Classic furnished rental (long-term lease, mobility, student):
   Cases 5ND. Indicates the total collected (rents, charges, provisions).
   Automatic 50% discount with a minimum of €305

2. Furnished rental classified tourism:
   Cases 5NG. Indicate the total of your recipes.
   Automatic rebate of 71% with a min. of 305€

3. Furnished tourist rental classified in zone B2/C and CA < €15,000:
   Cases 5QS.
   Automatic reduction of 92%.

Zones B2 and C are those provided for by the decree of October 2, 2023. A simulator allowing to know the type of zone (A, A bis, B1, B2 or C) on which the housing concerned depends is available on the Public Service site.

4. Furnished tourist rental classified in zone B2/C and CA > 15,000€:
   Cases 5 QT.

5. Furnished tourist rental classified with social security contributions (CA < 23,000€):
   Cases 5NW.

6. Bed and breakfast with social security contributions (CA < 23,000):
   Cases 5NJ.

Note that under the micro-BIC regime, a supplement of 17.2% is also applied to your turnover for social security contributions. However, be careful not to fill out the “Income to be taxed on social security contributions” section of the 2042 C-PRO form, as the deductions are automatically calculated.

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Simplified real regime: the declaration procedure

Prior to your tax return, you must file and send form No. 2031 and annexes No. 2033-A to 2033-G to the tax office. It is therefore your responsibility to declare your taxable profit, under the supervision of the tax authorities. In addition to this remote transmission, you must provide the following documents in an appendix:

• The simplified balance sheet including claims and debts related to the end of the financial year.
• The simplified income statement detailing the items of accounting result and fiscal result.
• The table of fixed assets, depreciation and amortization and elements falling under the tax regime for capital gains and losses.
• A statement of provisions, derogatory amortizations and deficits that can be carried forward by property.
• The table determining the added value produced during the year.

Micro Bic or Simplified Real Regime: Example of Tax Calculation

To illustrate the differences between the two regimes, consider an example of an LMNP owner with 30,000 euros in annual revenue and 18,000 euros in real expenses (including depreciation).

Description

BIC microphone

Simplified Real Regime

Annual revenue

30,000 euros

30,000 euros

Deductible expenses

N/A (50% discount)

18,000 euros

Taxable income

15,000 euros

12,000 euros

In this example:

• Micro BIC: the taxable income is calculated after applying the lump-sum allowance (50% of 30,000 euros).
• Simplified real regime: the taxable income is the result after deduction of the actual expenses of 18,000 euros from total revenue.

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What are the tax advantages under LMNP?

Among the advantages of the Non-Professional Furnished Renter (LMNP) status, we find an increase in rents compared to bare rentals, more flexible rental leases, real estate amortization, VAT recovery, and reduced taxation on capital gains stand out. These mechanisms provide tax optimization levers that are particularly interesting for investors.

Real estate amortization: key to tax exemption in LMNP

Depreciation is one of the pillars of LMNP tax exemption. This mechanism allows investors to deduct from their rental income a portion of the cost of acquiring the property and its components (furniture, equipment), spread over the estimated lifespan of the assets.

• The purchase of the property and equipment can be amortized over several years (generally 15 to 50 years for real estate and 5 to 10 years for equipment).
• Each year, a fraction of the cost of the property is deducted from rental income, thus reducing taxable income. For example, for a property acquired at 300,000 euros, an annual depreciation of 10,000 euros could be applied.
• If depreciation and other expenses exceed rental income, the deficit can be carried forward and deducted from future profits, improving cash flow in the long run.

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Recovering VAT on the purchase of a new property

VAT recovery is another considerable tax advantage for LMNP investors, applicable mainly when buying new goods or service residences.

• The recovery of 20% VAT is subject to the rental of your property as a service residence (student, tourist, medical residences, etc.) for a minimum period of 20 years without interruption in the provision of services (3 out of 4 including breakfast, reception, household linen or cleaning).
• This recovery can significantly reduce the initial cost of the investment. For a purchase of 200,000 euros, for example, the recovery of VAT can represent an immediate saving of 40,000 euros.

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The advantageous taxation of capital gains in LMNP

The taxation of capital gains in LMNP is also more favorable compared to that applicable to unfurnished rentals.

• Unlike bare rentals, capital gains made on furnished properties are completely exempt from income tax after 22 years of ownership. Income tax relief for length of ownership is 6% per year from the 6th year to the 21st year and 4% in the 22nd year. That is 100% at the end of 22 years.
• In addition, social security contributions (17.2%), which are completely reduced after 30 years. Exemptions for length of detention are applied from the 6th year, gradually reducing taxation. (1.65% for the 6th year of detention, 1.60% in the 22nd year and 9% in the 23rd year). That is 100% after 30 years of detention.

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Tax differences between LMNP and LMP

Choosing between the two statuses: Non-Professional Furnished Renter (LMNP) and Professional Furnished Renter (LMP) can have significant implications on taxation, investment strategy, and long-term planning.

Classification criteria

• LMNP: you are classified as an LMNP if your annual rental income is less than 23,000 euros and does not exceed the professional income of the fiscal household.
• LMP: LMP status is awarded if the revenue exceeds 23,000 euros and represents more than the income of the fiscal household.

Tax implications

Taxation of profits:

• LMNP: profits are taxed in the Industrial and Commercial Profits (BIC) category, with the possibility of choosing between the micro-BIC regime (with a flat rate of 50% for long-term rentals and 30% for short-term rentals) or the real regime.
• LMP: profits are also taxed in the BIC category, but renters can deduct the deficit generated by the activity from their overall income, which is not allowed in LMNP.

Capital gains on resale:

• LMNP : capital gains are subject to income tax after an allowance for the duration of ownership, with total exemption after 22 years for taxation and 30 years for social security contributions.
• LMP : as a professional, you can benefit from a total exemption from capital gains if you have owned the property for at least Five years and your annual revenue is less than 90,000 euros.

Surtax on high capital gains:

Since January 1, 2013, an additional surcharge of 2% to 6% has been applied to real estate capital gains that exceed 50,000 euros. This surcharge is calculated on the total amount of taxable capital gain, after any deduction related to the length of ownership.

This surtax concerns capital gains from the sale of real estate, with the exception of building land and exempt sales, such as those concerning the main residence.

In the case of several owners (married couple, civil partnership, cohabiting partners or other co-owners), the threshold of 50,000 euros is assessed for each transferor according to the share of capital gain that belongs to him.

For example, if a married couple sells joint property with a net taxable capital gain of 95,000 euros, the share of capital gain attributed to each spouse is 47,500 euros. As this sum is below the threshold of 50,000 euros, the spouses are not subject to the surtax on high capital gains.

VAT recovery:

• LMNP and LMP : Both statuses allow the recovery of VAT on the purchase of new goods under certain conditions, in particular the commitment to rent the property for at least 20 years.

Practical examples

• An LMNP could declare 20,000 euros in rental income with few expenses and choose the micro-BIC to simplify its declaration and reduce its taxes.
• An LMP with rental income of 50,000 euros and significant expenses could opt for the real regime, using the deficits to reduce its overall taxable income.

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Finance law 2024: what are the implications for LMNPs?

The 2024 Finance Law makes several changes that directly affect investors under the status of Non-Professional Furnished Rental Company (LMNP), in particular with regard to furnished tourist accommodation and other legislative aspects

Changes concerning furnished tourist accommodation

The micro-BIC regime automatically applies to all owners of seasonal rentals whose rental income is below €188,700 (classified tourist accommodation) or €77,700 (unclassified tourist accommodation).

With the 2024 finance bill, these thresholds change as follows:

• €23,000 for all furnished tourist accommodation (Lemeur Act)

Until 2023, landlords under the micro-BIC regime benefit from a flat rate reduction of 50%, or even 71% in the event of renting a classified furnished tourist accommodation.

From now on, the discount rate varies according to the type of rental:

• 30% for furnished tourist accommodation
• 50% for classic furniture

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Legislative developments and their practical impact

The 2024 Finance Law also includes broader adjustments that influence LMNP owners beyond furnished tourist accommodation alone:

• The threshold for applying the micro-BIC regime is increased from €77,700 to €23,000. Beyond this amount, you will automatically be subject to the actual tax regime. In addition, the lump-sum allowance is reduced from 50% to 30%. As a result, the micro-BIC regime thus becomes less attractive for non-professional furnished rentals. Thus, the real regime offers the possibility of significantly reducing your tax level. In addition, if you opt for long-term rentals, depreciation is still not taken into account when calculating the capital gain. So you can take full advantage of the benefits of this status.

Owners should be vigilant and consult an LMNP expert to adapt their tax planning to the new laws.