Real Estate Taxation for Investors: Tax Reductions 2026

In buy-to-let investment, net return depends more on the tax regime chosen than on the negotiated purchase price. Two investors placing the same amount in the same building can show very different after-tax results depending on whether they let unfurnished or furnished, and depending on the reporting regime chosen. This article sets out the trade-offs that actually create the difference, leaving aside niche schemes.

Unfurnished letting: property income

Rent from an unfurnished let property falls under property income, with two possible regimes.

The micro-foncier regime applies automatically below an annual income threshold. It grants a flat-rate allowance of 30% covering all expenses. Its simplicity is its only advantage: as soon as actual expenses exceed 30% of rent — which is common as soon as there is a loan or works — it becomes unfavourable.

The actual expenses regime allows deduction of actual costs: loan interest, insurance premiums, property tax, management fees, and above all maintenance, repair and improvement works. Construction, reconstruction and extension works are excluded.

When expenses exceed rent, the property deficit is offset against total income within an annual cap, with the portion arising from loan interest remaining deductible only against property income. The surplus can be carried forward for ten years. This is the most effective lever of the unfurnished regime, and it requires concentrating works within a single tax year rather than spreading them out.

One constraint accompanies this advantage: the offset against total income is only secured if the property remains let for the following three years.

Furnished letting: the regime that changes everything

Rent from a furnished property falls under industrial and commercial profits, rather than property income. This classification, often seen as an administrative subtlety, is the main lever of property taxation.

The micro-BIC regime applies a flat-rate allowance on income, with a rate and thresholds that have been tightened for furnished tourist accommodation — a point worth checking for the current year, as the rule has changed several times.

The actual expenses regime allows deduction of expenses, but above all the depreciation of the property and furniture. The building is broken down into components depreciated over their own useful lives, with land not being depreciable. This depreciation is a deductible expense that corresponds to no cash outflow: it reduces taxable income without affecting actual return.

In practice, an investor under the actual expenses regime for furnished lettings frequently neutralises their tax liability for many years. Depreciation cannot, however, create a deficit: the non-deductible portion can be carried forward indefinitely against future profits of the same kind.

The choice between unfurnished and furnished therefore turns less on the headline rent than on this mechanism. It also involves management considerations: faster turnover, equipment obligations, and the constraints described in our guide to rental management.

Capital gains on resale

Capital gains on property held by individuals are taxed at a proportional rate of income tax, plus social security contributions.

An allowance for length of ownership applies, on two different schedules: full exemption from income tax is reached after 22 years of ownership, and from social security contributions after 30 years. This eight-year gap is systematically underestimated in exit projections.

The main residence is exempt with no ownership-period condition. Other exemptions exist, notably for the first sale of a property other than the main residence subject to a reinvestment condition, or for low-value sales.

The acquisition price can be increased by acquisition costs and works, on a flat-rate or actual basis, which reduces the taxable base accordingly. The corresponding supporting documents must be kept for the entire period of ownership — a point that the notary rarely mentions at the time of purchase.

Holding directly or through a company

The non-trading property company (SCI) is often presented as a tax optimisation tool. It is, first and foremost, a tool for succession and governance.

Under income tax, the company is tax-transparent: each shareholder is taxed on their share according to property income rules. The tax regime is therefore identical to direct ownership.

Under corporation tax, the logic changes: depreciation of the property becomes possible, taxation at the corporate rate applies, but the capital gain on disposal is calculated on a net book value reduced by depreciation — which produces a taxable gain markedly higher on resale. The option is irrevocable in practice. It suits a long-term holding and reinvestment strategy, not a medium-term resale. This reasoning ties in with what is set out in our article on corporate taxation.

Tax reduction schemes

The landscape has narrowed. The main tax relief scheme for new-build property is closed to new transactions, and the remaining schemes are more targeted:

• The renovation incentive regimes for older properties, conditional on works and location.
• Agreements with the national housing agency, which offer a tax allowance in exchange for a capped rent.
• The heritage regimes applicable to protected buildings, reserved for major works and for heavily taxed taxpayers.

None of these compensates for a poor location or a poor purchase price. The constant rule in this area is that the tax advantage is calculated after the transaction, never before: a purchase that does not stand up without its tax advantage does not stand up at all.

Usage scenarios

First buy-to-let investment with a loan. The actual expenses regime for unfurnished letting is almost always preferable to the micro-foncier regime, as loan interest is generally enough to exceed the 30% flat-rate allowance.

Property requiring major works. Concentrate deductible works within a single tax year to create a deductible property deficit, bearing in mind the obligation to let the property for the following three years.

Seeking income that is lightly taxed or untaxed. Furnished letting under the actual expenses regime, with depreciation, is the most effective structure. It requires proper bookkeeping, and recoverable charges must be correctly separated from deductible expenses.

Frequently asked questions

Micro-foncier or actual expenses regime? The actual expenses regime as soon as expenses exceed 30% of rent, which is commonly the case where there is a loan or works. The micro regime is only worthwhile for a property held without debt and without significant expenses.

Is furnished letting more advantageous than unfurnished letting? From a tax perspective, almost always, owing to depreciation of the property under the actual expenses regime. The trade-off lies in management: shorter leases, higher turnover, mandatory equipment.

How long before being exempt from capital gains tax? 22 years of ownership for income tax, 30 years for social security contributions. This eight-year gap must feature in any resale projection.

Does an SCI reduce tax? Not in itself. Under income tax, it is tax-transparent. Under corporation tax, it allows depreciation but significantly increases the capital gain on disposal. It is a succession tool before being a tax tool.

Is the property deficit deductible without limit? No. The offset against total income is capped annually, with the portion arising from loan interest only deductible against property income. The surplus is carried forward for ten years.

Should invoices for works be kept? Yes, for the entire period of ownership. They increase the acquisition price when calculating the capital gain, and this increase is refused without supporting documents.

Key takeaways

Three decisions account for most of the difference in net return, and all are made before the purchase. The letting type first — unfurnished or furnished — which determines the tax category and access to depreciation. The reporting regime next, where the flat-rate option is only worthwhile in the absence of debt and expenses. The holding structure last, direct or through a company, whose effect is felt mainly on resale.

Tax reduction schemes come afterwards, and never first. An investment that is only profitable because of its tax advantage remains a poor investment, and the acquisition process itself deserves just as much attention, as detailed in our article on the legal and financial process of a property purchase.