The property deficit: what is the principle and how is it offset?
A property deficit arises when the deductible costs of an unfurnished let property exceed the rents. The fraction stemming from costs other than loan interest is offset against overall income within an annual limit set in Article 156, I-3 of the CGI; the surplus is carried forward against later rental income.
How a property deficit arises
A property deficit appears, under the actual regime only, when the deductible costs of an unfurnished let property exceed the rents received. The micro-foncier can by construction generate no deficit, since it applies a simple flat-rate allowance.
The offsetting mechanism distinguishes two categories of costs. Loan interest is offset first against rental income only; it can never reduce overall income. The other costs (maintenance and repair work, property tax, insurance, management fees) can, for their part, generate a deficit deductible from overall income.
- Property deficit possible only under the actual regime.
- Loan interest: offsettable only against rental income.
- Other costs: can create a deficit deductible from overall income.
Offsetting against overall income and its ceiling
Article 156, I-3 of the CGI authorises the offsetting of the property deficit, for the part arising from costs other than loan interest, against the household's overall income, within an annual limit of 10,700 euros. This offsetting directly reduces the base subject to the progressive income-tax scale, which is the appeal of the mechanism.
This ceiling of 10,700 euros is a legal amount liable to change, and temporary increased ceilings have existed for certain work (for example energy renovation making it possible to take a home out of the energy-sieve status). Check the ceiling and any increased mechanisms in force in the year of the work before deciding.
- Offsetting against overall income limited to 10,700 euros per year (Article 156, I-3 of the CGI).
- Only the part excluding loan interest is offsettable against overall income.
- Ceiling liable to change, occasional increases possible (e.g. energy-renovation work): to be checked.
Carrying forward the surplus and the rental condition
The fraction of the deficit that exceeds the annual limit offsettable against overall income, as well as the part corresponding to loan interest, are not lost: they are carried forward against rental income of the following years, for ten years, and reduce future rental profits.
Offsetting against overall income is conditional on maintaining the letting of the property for a minimum period set by the CGI after the year of offsetting. In practice, the home must remain let unfurnished until the end of this period; failing which, the advantage may be challenged. Comply with this holding condition to secure the tax benefit.
- Surplus beyond the ceiling and loan interest: carriable forward against rental income for 10 years.
- Obligation to maintain unfurnished letting for the period set by the CGI.
- Failure to comply with this condition: possible challenge to the offsetting against overall income.
Frequently asked questions
Can loan interest create a deficit deductible from my salary?
No. Loan interest is offset only against rental income, never against overall income. Only the other costs (work, property tax, insurance, management) can generate a deficit deductible from overall income, within the limit of 10,700 euros per year provided for in Article 156, I-3 of the CGI.
What happens to the part of the deficit that exceeds 10,700 euros?
It is not lost. The fraction exceeding the annual ceiling offsettable against overall income, as well as the part linked to loan interest, are carried forward against your rental income of the following ten years and reduce your future taxable rental profits.
Am I obliged to keep letting after offsetting a deficit?
Yes. The benefit of offsetting against overall income is conditional on maintaining the unfurnished letting of the property for a minimum period set by the CGI after the year of offsetting. Selling or ceasing to let too early can lead to the advantage being challenged.
Read next
- Légifrance, article 156, I-3 du Code général des impôts (imputation des déficits fonciers)
- Légifrance, article 31 du CGI (charges déductibles des revenus fonciers)
- BOFiP, BOI-RFPI-BASE-30-20 (modalités d'imputation des déficits fonciers)
- Service-Public.fr, déficit foncier
- impots.gouv.fr, revenus fonciers et déficit foncier
A question about your plans?
Realistic price, order of the steps, agency fees on a sale. Book a video call with a BRIVEO adviser, free and with no commitment.
Talk to a property adviser