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Renovation of a house or apartment: what tax exemption for what work?

Tax exemption and work in the old, what tax advantage according to the project?

Housing renovation work often benefits from tax aid granted by the State, making it possible to reduce the total budget for an individual. However, the nature, conditions, terms and amount of the tax incentive vary considerably depending on the type of housing (main residence or rental investment) and work carried out. And we cannot strictly speak of tax exemption in all cases, but rather mechanisms of tax compensation for the cost of renovation work for the taxpayer.

In summary, we can distinguish three distinct categories of situations:

  1. Renovation work on the main house, aimed at improving its energy performance (insulation, acquisition of new heating equipment) or accessibility for an elderly or disabled person. The tax aid, granted in the form of a tax credit, is now extinguished, after its replacement by the MaPrimeRénov' aid.
  2. Work in rental accommodation carried out by a landlord to improve its potential and/or comfort for the tenant. This is then renovation work deductible from property income which reduces the basis for calculating the tax.
  3. Investments in an old apartment requiring major – even very heavy – renovation/rehabilitation work, generally within the framework of a property tax exemption system (Denormandie law, Pinel law, Malraux law, historical monuments), sometimes within the framework of a system of common law (land deficit).

Note: the tax benefits cannot be combined for the same expense.

Tax exemption for renovation work on the main house

Certain home renovation works paid for in 2021 may benefit from a tax incentive in the form of a tax credit. What is the principle of the tax credit? This is deferred state aid. The taxpayer receives his money the year following payment for the work either in the form of a tax refund (if the taxpayer is non-taxable or if his tax credit is greater than the amount of tax he should have pay excluding the tax benefit) or via a reduction in the tax due if the tax credit is less than the amount of the gross tax.

The fact of having to advance money and therefore of waiting a few months to more than a year to be partially reimbursed constitutes the main disadvantage of this type of aid.

Windows, heating… Tax credit for energy renovation work

This tax credit for the energy transition (CITE) can no longer be mobilized since January 1, 2021, the device having been replaced by Ma Prime Rénov' after having undergone several transformations in recent years, before its disappearance. The CITE was mobilized for the last time for work undertaken no later than December 31, 2020, having been the subject of an estimate and the payment of a deposit in 2019 or in 2020 (payment of the balance in 2021 is possible , hence the possibility of boxes to be declared in 2022).

Tax credit for the energy transition 2022

Several energy renovation works on old housing are eligible for the energy transition tax credit (CITE), commonly known as the renovation tax credit. It can concern any dwelling (detached house or apartment) occupied as a main residence, which must have been completed for more than 2 years at the time of the start of the renovation project.

The 2022 tax credit for expenditure in favor of the energy transition of the main dwelling carried out in 2021 works completely differently:

The energy transition tax credit is subject, for expenses paid in 2021, to a tax credit ceiling set for a period of 5 consecutive years (relating to expenses incurred over the 2017-2021 period):

Ceiling application example:

In the event of the purchase in 2018 of a wood pellet stove worth 10,000 euros including tax that gave rise to the allocation of the tax credit in 2019 in the amount of 5,000 euros, a couple will not be able to benefit in 2022 of the tax credit for any other eligible expenses incurred in 2021.

Tax credit for adapting the main residence to age or disability

An elderly or disabled person may need an adaptation of their home in order to help them stay at home in good conditions. Expenses for the installation or replacement of equipment specially designed for this purpose (stairlift, lift adapted for a person with reduced mobility, handrails or support bars, etc.) carried out within the main residence give the right to a tax credit equal to 25% of the invoice, labor included.

This system is in force until December 31, 2023, in the current state of the texts (source article 200 quater A of the General Tax Code).

Rénovation d’une maison ou d’un appartement : quelle défiscalisation pour quels travaux ?

To be entitled to it, the taxpayer or a member of his tax household must meet one of the following conditions:

The detailed list of eligible equipment is set by law, in article 18 ter of the CGI (General Tax Code).

Expenses for renovation work on a house or apartment, taken into account for the calculation of the tax credit, are capped. This limit covers a multi-year period of 5 consecutive years. Thereby :

This spending limit over 5 years is set at:

Deduction of rental renovation work: expenses deductible from property income

When you rent a house or apartment unfurnished, the tax authorities agree to count certain work expenses as expenses in the tax return, which reduces taxable income (unlike a second home).

There are several ways of taking works into account, corresponding to the two property income declaration systems.

Depending on the tax regime chosen by the taxpayer in his declaration, real or micro-property, renovation work is deductible from property income (rent collected) or is not.

Renovation work and tax deduction under the real regime

The majority of taxpayers with property income declare their rental income under the actual tax system (box 4BA of the income tax return and form 2044). Once chosen, this option applies for three consecutive years, without the possibility of revoking it (we speak of an irrevocable option).

The actual tax system makes it possible to deduct various expenses for work carried out on rented accommodation and paid in 2021 (for the 2022 tax return) or in 2022 (for the 2023 tax return):

Construction, reconstruction or expansion work is not deductible.

Thus, the works are deducted from the gross rental income. Work charges are added to other deductible charges (rental management costs, insurance premiums, property tax, loan interest, etc.). If the balance resulting from the compensation between rents and charges is positive, the owner generates a profit, the taxable net property income. If the charges are greater than the revenue, a loss is generated, called the land deficit.

Within the limit of 10,700 euros per year (and if it results from expenses other than loan interest charges), the land deficit can be reduced from other household income (salaries, retirement pensions, etc.).

Beyond 10,700 euros or if the land deficit comes from interest on a mortgage, this loss can be carried over: it may be reduced from land income for the following ten years.

Micro-property: non-deductible renovation work

In particular, in order to benefit from simplified declarative procedures, some landlords may find it beneficial to declare their land income to the micro-land regime (box 4BE of the tax return). This is all the more true if they have few expenses to deduct.

In this case, the work expenses are not deductible. However, the fact of opting for this simplified regime makes it possible to benefit from an assessment of the charges according to a flat rate equal to 30% of the gross property income. In other words, if the amount of deductible charges is less than 30% of the rents received, the taxpayer is entitled to benefit from the micro-land regime.

This regime applies if the gross amount (before deduction of any charge) of property income received by the tax household is less than or equal to 15,000 euros.

Tax exemption schemes in old real estate with work

Denormandie law: tax exemption in the old to renovate in medium-sized towns

As part of the finance bill for 2019, the government passed an amendment extending the operation of the Pinel system to acquisitions of old housing undergoing renovation work, representing at least 25% of the total cost of the operation. . This system is called the Denormandie law, in reference to the minister responsible for housing.

Apart from the location of the buildings and the nature of the work to be carried out (targeted on improving energy performance), the operating rules of the Denormandie system are identical to those of the Pinel system (ceilings, tenant resources, regulated rents).

The scheme aims to encourage private owners to improve housing in certain degraded town centres.

Housing located in a city that has signed a territory revitalization operation (ORT) and the 222 medium-sized cities of the Action heart of the city plan, committed by the government to revitalize these municipalities, are eligible.

Pinel law: rental investment in the old and tax exemption

The Pinel tax exemption system is best known for the tax reduction it provides, under conditions of capped rents and the tenant's resources, in the context of investment in a new apartment in dynamic urban areas. But the principle can be applied perfectly in old real estate. The possibility is expressly provided for in the legal texts: an old property is eligible for Pinel "which is or has been the subject of rehabilitation work, defined by decree, allowing the accommodation to acquire technical performance close to that of 'a new dwelling' (Article 199 novovicies of the CGI, 3° of the B. of the I.).

The rate of the Pinel tax reduction for the acquisition of rehabilitated housing or with a view to its rehabilitation is identical to that practiced in new buildings: 12%, 18% or 21% depending on the duration of the rental commitment. .

Important: the tax exemption rate of the Pinel system is expected to decrease from 2023, before the disappearance of the system scheduled for December 31, 2024.

In this context, the tax reduction is calculated within the limit of a cost price of 300,000 euros per taxpayer and per year, including the purchase price of the buildings and the price of the works.

Under certain conditions, it is possible to combine the advantages of the Pinel system with those of the land deficit. This is called Pinel optimized for land deficit.

Malraux Law: tax exemption system in the restoration of buildings

The acquisition of an apartment as part of a program of complete restoration of a building located in certain sectors delimited by law (site of remarkable heritage value, old degraded district, etc.) can allow the investor to benefit from a significant tax reduction. This is the principle of the Malraux law, a device which has the particularity of not being subject to the capping of tax loopholes at 10,000 euros per year.

For operations under the Malraux Law that have been the subject of a building permit application or prior declaration since January 1, 2017, the amount of expenses eligible for the tax reduction is capped at 400,000 over a period of 4 years, i.e. a maximum tax reduction of 120,000 euros. The price of the walls is not taken into account in the calculation of the tax benefit.

Note: if the tax reduction is greater than the amount of tax due, the difference is not refunded or carried over to the tax for subsequent years.

Tax exemption for work in a historic monument

The private owner of real estate protected as historical monuments and also having very high incomes can benefit from a substantial tax deduction in return for the restoration and maintenance work for which he has borne the cost. This applies when one owns an old building recognized as a historical monument but also when one proceeds to the acquisition of a lot of co-ownership within the framework of a program launched by an operator in a building complex to be restored.

More specifically, for the year during which he paid work expenses, the taxpayer may deduct from his overall income (and not only from his potential land income) certain land charges, the expenses taken into account not being capped (unlike the common law land deficit regime, where work deductible from overall income is capped at 10,700 euros per year). As a result, this work deduction can contribute to completely erasing the taxable income of the taxpayer and ultimately to canceling the amount of income tax for the year in question. This is the whole point of the tax exemption for historical monuments (MH) in addition to the contribution to the safeguarding of French monumental and architectural heritage.

Note: as a reminder, for people who already own an MH, it will have been necessary to wait until 2020 to relaunch the work in order to benefit from 100% tax efficiency of the system. Work carried out in 2019 was only deductible for half of its amount due to a system put in place as part of the tax blank year (except for a first acquisition in 2019).

Tax exemption in land deficit in the purchase of an apartment with work

The property deficit regime (when charges exceed rental income) is of particular interest for taxpayers with property income and heavily taxed (in a tax bracket of 30%, 41% or 45%).

Used in the context of an investment in an old dwelling requiring renovation work, it can contribute not only to reducing the tax base for the year in which the expenses are incurred (erasure of the rents collected the same year) but in addition to reducing the property income tax for the following 10 years beyond certain limits or if the work expenses were financed on credit.

In this context, the weight of work expenses in the total cost of the operation is very substantial: generally, the distribution of the cost price of the apartment to be renovated is around 30 to 40% for the land (the walls ) and 60-70% for works depending on the location of the property.

Given the average time taken to complete the renovation work (2 years), the initial deductible expense can be spread over 2 or 3 years depending on the start date of the work.

Unlike the Malraux law or the Historic Monuments law, the geographical location of real estate programs with a land deficit is not constrained by specific zoning or a classification of the building by the State.

Tax exemption for works and deduction at source

What is the impact of the renovation work giving rise to a tax advantage on the home's withholding tax? It all depends on the nature of the tax benefit in question.

If it is a tax reduction (Pinel, Denormandie, Malraux) or a tax credit for work, the withholding tax rate is not changed. However, the tax benefit is indeed taken into account and is subject to tax reimbursement, either once during the summer, or twice (in January and July-August).

If it is a tax deduction (deductible work expenses deducting property income), the withholding tax rate is recalculated accordingly, as is the amount of installments to be paid monthly or quarterly for property income.

The chronology is as follows, according to the year in which the work was carried out:

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