It is up to the taxpayer to estimate whether his real estate assets exceed the legal threshold for taxation of real estate wealth tax (IFI). But it is possible to lighten the bill to pay, in all legality.
This is less than the 4 billion euros of wealth tax (ISF), but it is not negligible. Since 2018, the ISF version Macron is now called impt sur la fortune immomobilire (IFI) and it brought in 1.8 billion euros in 2022, an upward sloping amount (+ 10% compared to 2021).
Real estate wealth tax: deadline, too, this Thursday, June 8, for the IFI
A taxation which concerns more than 160,000 households whose net real estate assets on 1 January of the tax year is at least equal to the threshold of 1,300,000 euros per tax household. The IFI declaration takes into account the real estate of spouses regardless of their matrimonial regime, those of civil partners or notorious cohabitants, as well as those of their minor children. Here’s how to reduce the amount of tax payable.
What is the taxable real estate?
The property and real estate rights of which the tax household is the direct owner fall within the scope of the IFI, in particular houses, apartments, villas whether they are occupied or not, rented out or not, as well as land.
If legal persons are not subject to the IFI, the real estate assets they own may impact the financial situation of their partners. Units or shares in companies are in principle taxable up to their representative value of real estate assets or rights held by the company, unless these real estate assets are assigned to its operational activity.
Practical example
A partner holds 30% of the shares or shares of a company carrying out an industrial activity in a factory building belonging to him. It also has an apartment building. The factory building is excluded because it serves the operational activity of the company. This is not the case for the residential building, which will therefore be included in the base of the partner’s IFI up to the fraction that it represents in the shares or shares held by the latter.
In order not to disadvantage minority shareholders, the shares and shares of operating companies in which the taxpayer holds less than 10% are excluded from the scope of the IFI. The partner who is slightly above this threshold has an interest, when possible, in reducing his participation to return below 10%.
Assess real estate as accurately as possible
The IFI is a declarative tax: it is up to the taxpayer to determine whether or not he is taxable, and to set the value of the goods. The valuation is a delicate and very important operation involving a double risk: the property appraised above its value will automatically increase the note of the IFI to pay. In the event of undervaluation, the tax authorities get angry and correct. It is therefore necessary to give your full attention to the valuation of the goods that you declare to the IFI. But how to calculate the right price?
The law does not say how the patrimony should be calculated. It simply provides that it must be evaluated according to its market value on January 1 of the year, that is, the price you could get for it if you put it up for sale. The market value of a property takes into account many criteria: geographical location, architectural qualities, state of maintenance, surface area… Negative factors can reduce the market value: an apartment on the ground floor or on the 1st floor does not have the same value as another located in floors. Other possible factors: windows overlooking a busy street, a dump, a garbage room, a dwelling located near a railway line, etc.
A reliable calculation
To obtain a reliable valuation of your real estate, you can use the service heritage available free of charge on the portal www.impots.gouv.fr. The assessment is not anonymous: to access Patrim, you must use your tax credentials.
Optimizing your main residence
The main residence is a real estate asset subject to the IFI, but subject to a 30% reduction on its market value. In other words, this property is taxable on 70% of its value. The tax authorities also allow the deduction of loans contracted to finance the property up to 70% of its market value.
Practical example
A principal residence with a market value of 300,000 euros was acquired by means of a property loan of 290,000 euros. The value declared to the IFI will be 210,000 euros (300,000 euros – 30% reduction) minus 290,000 euros of deductible mortgage. Under these conditions, there will be no IFI tax on the main residence.
People subject to or likely to be in the scope of the IFI have every interest in acquiring their main residence with a mortgage for the highest possible amount. The loan will thus substantially reduce the market value of the property taxable at the IFI, or even wipe it out completely.
Rental real estate makes it possible to obtain a discount
Rented accommodation allows the owner to reduce its value in the eyes of the taxman. The calculation is simple. It suffices to determine the market value of the property and then apply a 20% discount in the case of a common law lease under the law of July 6, 1989 on the relationship between tenants and owners.
For accommodation subject to the law of 1948, the repossession of which is prohibited until the death of the tenant, the tax authorities authorize a discount of 40% to 50% of its market value. Another source of possible discount oscillating between 20% and 30%, joint ownership which prevents the sale of housing without the agreement of the other co-owners.
When the home has several negative factors, the discounts are cumulative. Thus, for housing held in joint ownership and rented under the law of 1948, it is possible to combine two discounts.
Real estate: this law which allows to have a 100 m2 Paris for a rent of 400 euros
The 75% cap
The ceiling is a safeguard measure intended to prevent the accumulation of IFI, IR, social security contributions and surcharge on high income – from exceeding 75% of the taxpayer’s income. Any excess reduces the amount of IFI to be paid.
THE Official Bulletin of Public Finances-Taxes (BOFiP-Impts) indicates the list of income used to calculate the IFI ceiling and specifies that it concerns all income, capital gains and proceeds from the previous year, collected in France or outside France, including whether they are exempt from income tax.