2025 Tax Reform in France: Major Changes for the LMNP Status and How to Adapt

Article mis à jour le 17/10/24

The 2025 Finance Bill (PLF 2025) introduces a major tax reform for Non-Professional Furnished Rental Operators (LMNP), challenging one of the key fiscal advantages of this status: depreciation.

 

Starting in 2025, depreciation deductions will be reintegrated into the capital gains calculation upon the resale of a property, impacting investor taxation.
This article will break down the details of this reform, its effects on rental property profitability, and the strategies investors can adopt to adjust to this new fiscal framework.

 

⚠️ Note: At this stage, this measure is only a proposal in the 2025 Finance Bill (PLF 2025).

 

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Context and Overview of the 2025 Finance Bill (PLF 2025)

The 2025 Finance Bill (PLF 2025) introduces significant tax reforms aimed at adjusting the Non-Professional Furnished Rental (LMNP) scheme. This proposal is part of a broader tax rebalancing initiative, particularly in response to the housing market pressures in high-demand and tourist areas.

 

One of the main measures concerns the reincorporation of depreciation into the capital gains calculation upon the sale of an LMNP property. This modifies a key tax advantage that investors have relied upon for years.

 

What is the 2025 Finance Bill (PLF 2025)?

 

 

The PLF 2025 is an annual legislative proposal that sets the budgetary and tax policies of the French government for the coming year.

 

For LMNP property owners, this bill proposes significant changes, including:

  • Reintegrating depreciation deductions into the capital gains calculation upon the resale of a property.
  • Aligning LMNP taxation with other real estate investment taxation models.
  • Addressing housing shortages in high-demand areas by modifying fiscal advantages.



Why is the LMNP Status Being Targeted?

 

The LMNP status is a popular tax scheme among investors due to its depreciation benefits, which allow for a significant reduction in taxable rental income.

 

However, the PLF 2025 seeks to modify what is considered an overly favorable tax structure. The government’s goal is to align LMNP capital gains taxation with other real estate investment models by:

  • Reintroducing depreciation into the capital gains calculation.
  • Reducing fiscal incentives that encourage LMNP investments over long-term rentals.
 

This reform is a response to housing shortages and the lack of available long-term rental properties in certain high-demand areas.

 

Source: National Assembly (Assemblée Nationale).

Reintegration of Depreciation into Capital Gains Calculation

 

 

The reintegration of depreciation into the calculation of capital gains is one of the most significant changes proposed by the PLF 2025 for non-professional furnished rental (LMNP).

Currently, depreciation allows investors to reduce the taxation of rental income without affecting the taxation upon resale. With the reform, these depreciations will now reduce the purchase value, thereby increasing the taxable capital gain upon sale. This modification aims to align LMNP taxation with that of other real estate investment regimes.

 

According to the Court of Auditors’ report, two additional proposals, in addition to this key measure on depreciation, stand out to thoroughly reform the LMNP regime:

  • Completely eliminating the depreciation of LMNP properties.
  • Aligning the micro-LMNP threshold to €30,000 with only a 30% tax allowance.

A real game-changer for LMNP property owners!

How Does LMNP Depreciation Work Today?

Currently, Non-Professional Furnished Rental Operators (LMNP) benefit from a highly advantageous tax system.

  • Depreciation allows investors to deduct a portion of the property’s value each year from their taxable income.
  • This significantly reduces rental income taxation.
  • Upon resale, depreciation is not factored into capital gains calculations, allowing investors to benefit from tax reductions on both rental income and resale profits.

What the Reform Changes: Depreciation Reincorporation

The PLF 2025 proposes to change this tax advantage by reintroducing depreciation deductions into capital gains calculations.

  • This means that all previously deducted depreciation will be subtracted from the property’s initial purchase price.
  • As a result, taxable capital gains will be higher, leading to increased taxation upon resale.

This reform aims to correct what lawmakers see as an excessive tax benefit for LMNP investors.

Tax Impact for LMNP Investors

The reintroduction of depreciation into capital gains calculations will lead to:

  • Higher taxable capital gains, increasing total taxes owed upon resale.
  • Lower profitability for investors who rely on capital gains as part of their investment strategy.
  • A decrease in the attractiveness of LMNP investments, particularly for those expecting significant resale profits.

The capital gains tax rate of 19% and social security contributions of 17.2% will apply to this revised taxable amount.

Learn more about LMNP depreciation and tax strategies in our exclusive 2025 guide.

Investors Affected by the Reform

The proposed PLF 2025 reform will not have the same impact on all LMNP investors. Short-term owners who resell their property after a few years will be the most affected.
On the other hand, those who hold their property for a long period will benefit from progressive capital gains tax exemptions.
These tax reductions (22 years for income tax exemption and 30 years for social security contributions exemption) help mitigate the impact of depreciation reintegration over time.

Exceptions and Special Cases

Certain situations allow LMNP investors to avoid capital gains taxation, even after depreciation reintegration. Gifts and inheritances are cases where capital gains taxation does not apply, as the property is transferred without being sold.

Moreover, many investors keep their property long-term, often until retirement or to pass it on to their heirs. These investors benefit from progressive tax exemptions, significantly reducing or even eliminating the tax impact of this reform.

Strategies to Adapt to the Reform

With the tax changes introduced by PLF 2025, LMNP investors will need to adjust their strategy to minimize the impact of depreciation reintegration in capital gains calculations. Several approaches can be considered depending on investment goals.

 

Holding Properties Long-Term to Reduce the Impact

For those planning to keep their property for the long term, the key strategy lies in the progressive tax reductions on capital gains. The longer the property is held, the less significant the effect of depreciation reintegration.

  • After 22 years, investors are exempt from capital gains tax.
  • After 30 years, they also benefit from an exemption on social security contributions.
  •  

By holding onto the property, investors can reduce or even eliminate the impact of the reform upon resale.

Additionally, it is possible to convert the property into a primary residence.
According to Amendment No. I-CF275, submitted by the National Assembly on October 11, the following conditions apply:

 

 

“This amendment proposes to condition the exemption on a minimum period of at least five years as a primary residence. Naturally, this condition would not apply in cases where the sale is made to purchase another primary residence, which would otherwise penalize any transaction outside first-time homeownership. Similarly, this period could be waived in cases of urgent necessity, such as job relocation, long-term hospitalization, entry into a nursing home, or even death or separation.

This amendment targets loopholes in the current regulations.”

Considering the Switch to Professional Furnished Rental (LMP)

For high-income investors, transitioning to Professional Furnished Rental (LMP) status may be beneficial. This regime offers:

  • Tax-deductible rental losses offset against total taxable income.
  • Exemption from capital gains tax under specific conditions (e.g., selling the property after more than 5 years of activity).

LMP status provides better control over rental investment taxation in the long run.

Diversifying Real Estate Investments

Another strategy involves diversifying investments. Instead of concentrating assets in one or two LMNP properties, investors can spread investments across different types of real estate assets, such as:

  • Unfurnished rental properties.
  • Real Estate Investment Trusts (SCPI).

This diversification approach helps dilute tax risks and optimize overall profitability by taking advantage of various fiscal regimes and reducing exposure to legislative changes.

Transferring the Property to an SCI under Corporate Tax (IS)

A real estate investment company (SCI) taxed under IS can reduce its annual taxable base and, consequently, its tax burden, by using depreciation on real estate and renovation work.

  • Depreciation reduces the taxable income of the company.
  • This results in lower corporate taxes for the SCI.

This structure can be a viable alternative for investors concerned about depreciation reintegration.

Tax Optimization with Qlower

Working with Qlower advisors will be a valuable asset for LMNP investors, especially with the upcoming tax changes. Our experts can:

  • Optimize tax management.
  • Suggest alternative depreciation strategies.
  • Advise on the best investment strategies to reduce the impact of new regulations.


Additionally, Qlower provides personalized support and free tax simulations to help investors prepare for future fiscal reforms.

Outlook and Debates on the Reform

The tax reform proposed in PLF 2025 has sparked considerable debate among lawmakers and real estate professionals.

  • Some argue that these changes will burden LMNP investors with higher taxes.
  • Others believe that the reform is necessary to regulate rental market imbalances, particularly in high-demand urban and tourist areas.

Parliamentary Debates and Potential Adjustments

Since the PLF 2025 proposal, ongoing discussions in Parliament could lead to modifications before the final adoption of the bill.

Some policymakers advocate for:

  • A gradual transition period to ease the impact of depreciation reintegration.
  • Specific exemptions for long-term rental investors.
  • Tax incentives for landlords providing affordable housing in high-demand areas.

Future Impacts on the Rental Market

If adopted as proposed, this reform could:

  • Dissuade investors from choosing LMNP status, especially for short-term investments.
  • Reduce market liquidity, as some investors may delay reselling properties to avoid capital gains taxation.
  • Encourage a shift toward long-term rentals, particularly in urban and tourist areas.

However, long-term LMNP investors will experience less impact, as depreciation reintegration will be progressively offset by tax exemptions.

The long-term effects of this reform will need to be closely monitored to understand its influence on rental supply and property prices in France.

How to Stay Updated on Legislative Changes?

The 2025 Finance Bill (PLF 2025) marks a significant turning point for LMNP investors, particularly with the reintegration of depreciation into capital gains taxation.


Although these changes may increase tax burdens, investors must:

  • Stay informed about legislative updates.
  • Adapt investment strategies accordingly.
  • Consider alternative tax structures such as LMP or SCI under IS.
  • Diversify their real estate portfolio.

By staying proactive, investors can continue optimizing their real estate portfolio and navigate an evolving fiscal landscape.

FAQ ​

What is the PLF 2025 reform for LMNP?

The PLF 2025 proposes to reintegrate depreciation into the calculation of capital gains when reselling an LMNP property, thereby increasing taxation.

Who will be most affected by this reform?

Short-term investors will be the most impacted, as they will face the direct consequences of depreciation reintegration into capital gains. Those who hold their property long-term will benefit from progressive tax reductions.

How can I minimize the impact of this reform?

By keeping your property long-term as a primary residence, considering the LMP (Professional Furnished Rental) status, switching to an SCI taxed under corporate tax (IS), or diversifying your real estate investments.

Does this reform affect all LMNP investors?

Yes, all LMNP investors are affected, but the impact will be less significant for those holding their properties long-term or transferring them through donation or inheritance.

What are the alternatives to LMNP under this reform?

Investors can consider switching to the LMP status or investing in other types of real estate to optimize their tax strategy.

Author of the article

Charlotte MONNET 

Innovation & Project manager 

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