Real Estate Taxation for Investors: Tax Reductions 2026

In rental property investment, net yield depends more on the taxation 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 dwelling falls under property income, with two possible regimes.

The micro-foncier regime applies automatically below an annual revenue threshold. It grants a flat-rate allowance of 30% representing all expenses. Its simplicity is its only merit: as soon as actual expenses exceed 30% of rent — which is common as soon as there is a loan or works involved — 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 loss (déficit foncier) is offset against total income within an annual ceiling, with the portion arising from loan interest remaining offsettable 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 financial year rather than spreading them out.

One constraint accompanies the benefit: offsetting against total income is only secured if the dwelling 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, not 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 revenue, whose rate and thresholds 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 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 does not correspond to any cash outflow: it reduces taxable income without affecting actual yield.

In practice, an investor under the actual expenses regime for furnished letting frequently neutralises their tax liability for many years. However, depreciation cannot create a loss: the non-deductible portion can be carried forward indefinitely against subsequent profits of the same nature.

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

Capital gains on resale

Property capital gains for individuals are taxed under income tax at a flat rate, plus social security contributions.

An allowance based on holding period applies, following two distinct timelines: full exemption from income tax is reached after twenty-two years of holding, and exemption from social security contributions after thirty years. This eight-year gap is systematically underestimated in exit projections.

The primary residence is exempt regardless of holding period. Other exemptions exist, notably for the first sale of a dwelling other than the primary residence subject to a reinvestment condition, or for low-value disposals.

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

Holding directly or through a company

The société civile immobilière is often presented as an optimisation tool. It is primarily a tool for succession planning and governance.

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

Under corporate tax, the logic changes: depreciation of the property becomes possible, taxation at the rate applicable to companies, but the capital gain on disposal is calculated on a net book value reduced by depreciation — which produces a taxable capital gain significantly higher upon resale. The option is irrevocable in practice. It suits a long-term holding and reinvestment strategy, not a medium-term resale. The reasoning aligns 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 properties is closed to new operations, and the remaining schemes are more targeted:

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

None of these compensate for a poor location or a poor purchase price. The constant rule in this area is that the tax benefit is calculated after the transaction, never before: an acquisition that does not stand on its own without its tax benefit does not stand at all.

Usage scenarios

First rental property 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 flat-rate 30% allowance.

Property requiring major works. Concentrate deductible works within a single financial year to create an offsettable property loss, while taking into account the obligation to let the property for the following three years.

Seeking income that is little or not taxed. 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? Actual expenses as soon as costs exceed 30% of rent, which is the common case when there is a loan or works involved. The micro regime is only justified for a property held without debt and without significant expenses.

Is furnished letting more advantageous than unfurnished letting? Tax-wise, almost always, due 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? Twenty-two years of holding for income tax, thirty years for social security contributions. This eight-year gap must appear in every resale projection.

Does a société civile immobilière reduce tax? Not in itself. Under income tax, it is transparent. Under corporate tax, it allows depreciation but significantly increases the capital gain on disposal. It is a succession planning tool before being a tax tool.

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

Should invoices for works be kept? Yes, throughout the entire holding period. 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 yield, and all are made before the purchase. First, the letting mode — unfurnished or furnished — which determines the tax category and access to depreciation. Then, the reporting regime, where the flat-rate option is only justified in the absence of debt and expenses. Finally, the holding mode, direct or through a company, whose effect is mainly felt on resale.

Tax reduction schemes come afterwards, and never first. An investment that is only profitable with its tax benefit 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.