Tax exempt furnished rentals? It can be done! But watch out, this does not apply to all taxpayers!
You must be a French tax resident, because yes, in order to be able to benefit from the furnished rental tax exemption, you must rent out part of your principal residence; second homes are excluded from this scheme.
Usually when you receive income from furnished rentals, you must report it on your tax return No. 2042 C PRO and you are then taxed on this income, which constitutes industrial and commercial profits (BIC).
However, in some cases you do not have to declare this income!
Indeed, Article 35 bis of the French General Tax Code provides that:
- People who let or sublet one or more furnished rooms of their principal home up to 31 December 2023, are exempt from income tax on the proceeds of this rental, provided that the rented furnished rooms constitute for the tenant or the sub-tenant their principal residence or their temporary residence, provided that they can prove a contract concluded in application of 3 of Article L. 1242-2 of the French Labour Code, and that the rental price remains set within reasonable limits.
- From 1 January 2001 until 31 December 2023, people who usually make one or more rooms in their main home available to the public are exempt from income tax on the proceeds of these rentals when this does not exceed € 760 per year.
There are therefore 2 possibilities to be exempt from tax on this income. The first is that you have to rent a part (one or more rooms) of your principal residence to a person who will establish their main residence there or otherwise as their temporary residence (this mainly relates to seasonal workers providing proof of an employment contract for a seasonal job). The second condition is that the amount of the rental price must be reasonable.
The second possibility is to rent part of your principal residence, again one or more rooms of it to a passing clientele (e.g., bed and breakfast). However, the amount of these rentals should not exceed the amount of 760 euros per year.
Please note, this scheme is applicable until 31 December 2023! Therefore, if in 2024 you rent part of your principal residence to a tenant establishing their principal residence there, you will no longer be able to benefit from this exemption.
Dig a little deeper!
BOFIP (administrative doctrine) gives some details (BOI-BIC-CHAMP-40-20).
Concerning the concept of a furnished letting in the principal residence of the lessor, this must concern one or more rooms in the principal residence of the lessor, which de facto reduces the living space for the latter.
In addition, these rooms must be included in the real estate complex assigned to residential use. So, if your property is for mixed use (residential use in one part and professional use in the other), be careful. Only the rooms rented in the real estate complex assigned to residential use can benefit from this exemption.
Then, since it is recalled that it is necessary to be in a real estate complex, a room independent of the main house cannot benefit from this exemption. It must be part of an inseparable whole.
It is also necessary, as the BOFIP recalls, that the tenant makes this accommodation their principal residence or that it is their temporary residence (for seasonal employees). In order to ensure that this condition is respected, we advise you (tenants) to always notify (by registered mail) your tax authority of your change of address.
Regarding the point that the rental price must be reasonable, there is no precise imperative. However, we advise you to take note of the publications of the tax authority which publishes a document each year indicating the two annual ceilings per square metre of living space depending on the region. This document is published annually since each year the amounts are reassessed. Here are some data published this year by the tax authorities, which could help you: Tax authorities data published.
Regarding guest rooms, again the lessor must offer one or more rooms belonging to their principal residence. As indicated in point II of Article 35 bis of the French General Tax Code, it is necessary that ‘people who usually make available to the public one or more rooms in their principal home‘. The duration of the rental has little influence (rental per night, week, month), even if this scheme generally concerns tourists, since here, ‘the tenant’ must not make this accommodation their own principal residence.
Regarding the amount of 760 euros (incl. tax) per year, this is the limit set in II of Article 35 bis of the French General Tax Code, in order not to have to declare this income. This limit of 760 euros applies to the total amount received, which includes in particular the amount of rents collected, taxes paid, and where applicable (if there are any) the services provided (e.g., breakfast).