Property deficit (déficit foncier) occurs when deductible expenses related to a property exceed the rental income received. This mechanism allows for a reduction in overall taxable income within specific annual limits, with the possibility of carrying forward the excess to subsequent years under precise rules. Its application varies depending on whether the property is "ordinary" or falls under protected categories such as monuments historiques or properties with the Fondation du patrimoine label.
Who Can Benefit from Property Deficit?
Property deficit applies to owners of rented or rental-destined properties, without distinction between urban or rural properties. However, the imputation rules differ based on the type of property:
- For "ordinary" properties, the deficit is deductible from global income up to an annual limit, but only if it arises from expenses other than mortgage interest.
- For monuments historiques and properties with the Fondation du patrimoine label, the deficit is fully deductible from global income without limits, with the possibility of carrying forward the excess to the global income of the next 6 years.
Which Expenses Generate a Property Deficit?
Deductible expenses must meet two fundamental conditions:
- They must relate to properties whose income is taxable under the revenus fonciers (property income) category.
- They must be incurred for the acquisition or preservation of income, as provided for in Articles 13 and 31 of the Code général des impôts (CGI).
For "ordinary" properties, eligible expenses include repair, maintenance, and improvement work, management expenses, and depreciation. For monuments historiques and properties with the Fondation du patrimoine label, the rules are more advantageous, with 100% deductions for actual property expenses and repair and maintenance work.
How Is Property Deficit Applied to Income?
Property deficit must be declared in the year it occurs and can be applied according to distinct rules depending on the type of property and the nature of the expenses. For "ordinary" properties, the annual deduction limit from global income is €10,700/year, which can be increased to €15,300/year or €21,400/year in specific cases. Any excess beyond the annual limit can be carried forward to property income over the next 10 years.
What Happens If the Property Is Sold?
If the property is sold before the end of the deficit carryforward period, the owner has two options:
- Waive the remaining deficit carryforward, or
- Increase the property’s purchase price by the portion of the deficit not yet deducted, attaching a note to the income tax return.
Combining with Other Tax Benefits
It is not possible to combine, for the same property, the tax reduction for overseas investments and the application of property deficit to global income. Additionally, property deficits from previous years can never be applied to the global income of subsequent years.
Specific Limits for Mortgage Interest
The portion of the property deficit derived solely from mortgage interest can only be applied to property income in subsequent years, with no possibility of deduction from global income.