LMP: deficit on overall income, professional capital gains and exemption thresholds

For a professional furnished rental provider (LMP), the deficit can be offset against total income without any limit. Upon sale, the property is subject to the capital gains tax regime for businesses. The capital gain may be fully exempt if revenue is less than €90,000, and partially exempt up to €126,000, for a business that has been operating for at least five years.

This page deals with deficits, capital gains, and exemption thresholds. It does not cover social security contributions. The criteria that distinguish between furnished rental properties (LMP) and non-professional furnished rental properties (LMNP) are detailed on the page about the €23,000 threshold.

The LMP deficit

Losses from furnished rentals are deductible from total income, without any limit (BOFiP, § 350). Service-public.gouv.fr adds that if total income is insufficient, the loss can be carried forward for six years. The tax administration's FAQ states the same. The BOFiP text consulted for this page does not mention this carry-forward.

Two limitations to be aware of:

• If you lose your LMP status, the right to deduct losses from your total income ends. Any remaining losses are subject to non-professional rules (BOFiP, § 390).
• Losses incurred when the activity was non-professional are not deductible from total income. Losses related to furnished rental properties (LMNP) are addressed on a dedicated page.

Capital gains: the professional regime

The sale of a property listed as an asset of the furnished rental business (LMP) falls under the regime for business capital gains, whether short-term or long-term (BOFiP, § 400, Articles 39 duodecies et seq. of the French General Tax Code). Long-term capital gains are eligible for the holding period allowance under Article 151 septies B of the French General Tax Code. The applicable rates are not detailed here.

Non-professional lessors do not have access to it: their capital gains follow the rules for individuals, without exemption from article 151 septies.

Exemption under Article 151 septies: conditions and thresholds

Three conditions emerge from the sources:

1. Five years in business. The exemption is only open to taxpayers who have been in business for at least five years, with periods of professional activity being cumulative (BOFiP, § 410).
2. A level of revenue. The BOFiP (§ 420) sets the thresholds for professional furnished rental providers. Service-public.gouv.fr (F32805) indicates that revenue is understood to be pre-tax, for the two calendar years preceding the sale; entreprendre.service-public.gouv.fr (F33162) and impots.gouv.fr refer to the average pre-tax revenue for the two calendar years preceding the closing date of the fiscal year in which the capital gain is realized. The two formulations are not identical: the exact reference year should be verified with these sources.
3. An activity subject to income tax. Companies subject to corporate income tax, either automatically or by choice, are not affected (impots.gouv.fr).

For the partial tax bracket, entreprendre.service-public.gouv.fr (F33162) publishes the following exempt portion in its "Services or Non-Commercial Profits" section: (€126,000 minus revenue) divided by €36,000. The BOFiP (§ 420) refers, for furnished rentals, to BOI-BIC-PVMV-40-10-10-10, which we have not reviewed: the application of this formula to furnished rentals should therefore be verified before making a decision. The wording at the exact threshold of €90,000 also differs depending on the source ("less than" in the BOFiP, "up to" on F33162 and impots.gouv.fr).

Case of the para-hotel industry. The BOFiP (§ 430) specifies that the rental of bed and breakfast rooms and furnished tourist accommodations may fall under the category of para-hotel services due to the additional services offered, with thresholds of €250,000 and €350,000 for Article 151 septies. Entreprendre.service-public.gouv.fr cites the para-hotel regime as applying when at least three hotel-like services are provided. The BOFiP does not specify a number of services.

The revenue used for the exemption is tax-exclusive. The status test (LMP or LMNP) considers revenue including all taxes.

Change of status before the sale

Capital gains are subject to the tax regime applicable at the time of the sale (BOFiP, § 460). A tolerance allows for the application of the rules of the previous year's status, with subsequent adjustment (§ 470). The status of the year of the sale is relevant. This issue is addressed using the figures in your file.

The charges, depreciation and taxes of the LMP

Deductible expenses include establishment and maintenance costs, local taxes, insurance, and loan interest. Furniture and improvements are depreciated over 5 to 10 years at a rate between 10% and 20% per year. Furnished rentals without services are not subject to VAT. Property tax and the CFE (Business Property Tax) are payable, except in certain cases. The CVAE (Corporate Value Added Tax) only applies to turnovers exceeding €500,000 excluding VAT.

Loss followed by sale: numerical example (fictitious profile)

Situation. Hélène is a professional landlord (LMP). Her other household income is €50,000. Her rental activity resulted in a loss of €12,000 this year. A few years later, she sells the property with a net capital gain of €120,000. Assumptions of the hypothetical profile: the activity has been carried out for more than five years, the €90,000 threshold is assessed based on the average of the pre-tax revenue for the two years indicated in the table, and the partial tax bracket formula published by F33162 applies to her case (point to be verified).

Issue. Does the deficit reduce his overall income, and what portion of the capital gain is exempt based on his revenue?

Strategy. Allocate the deficit to total income. Then apply the exemption under Article 151 septies according to three levels of revenue.

Result. The €12,000 deficit reduces the total income from €50,000 to €38,000. With a total income of €8,000, €8,000 would be deducted and €4,000 would remain to be carried forward (carry-forward for 6 years according to service-public.gouv.fr).

Line 72.22 % illustrates the formula published by F33162, the application of which to a furnished rental property (LMP) remains to be verified. The tax due on the remaining capital gain is not calculated here; the rates are not discussed on this page.

These profiles are fictitious. The figures illustrate the calculation and do not predict your situation.

LMP: What changes depending on your case

• The length of time the activity has been in operation. For less than five years, the exemption under article 151 septies is not available.
• The level of your pre-tax revenue over the two reference calendar years.
• The services provided. They can shift the rental into the para-hotel sector, with other thresholds.
• The form of exploitation. A company subject to corporate income tax does not fall under the exemption of article 151 septies.
• Your tax residence. For a non-resident landlord, the rule depends on your situation, which should be checked before deciding.

The rule depends on your situation. No results are guaranteed.