Pinel Law

Benefit from a Tax Reduction by Purchasing a Rental Property

Your Objective

Are you looking to reduce your income tax while making a rental real estate investment?
By acquiring a property under the Pinel tax incentive scheme, you can benefit from a tax reduction over a period of 6, 9, or 12 years, with an increasing tax advantage proportional to the duration of the rental commitment: 12% for 6 years, 18% for 9 years, and 21% for 12 years. 

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Details

The Pinel law aims to promote rental investment in areas with high demand for rental properties. This tax scheme encourages individuals to acquire new (or rehabilitated) housing units with the intention of renting them out as primary residences. In return, the owner, who must be a French taxpayer, benefits from a tax reduction. The first rental must occur within 12 months of the completion of the work or the acquisition.

Example of Tax Reduction:

For an investment of €180,000, here are the tax savings according to the duration of the commitment:

• €21,600 tax savings, equivalent to €3,600 per year over 6 years (12%).
• €32,400 tax savings, equivalent to €3,600 per year over 9 years (18%).
• €37,800 tax savings, equivalent to €3,150 per year over 12 years (21%).

Limits and Caps:

• The tax reduction is included in the overall tax niche cap of €10,000 per year and applies to a maximum of 2 properties per year.
• The investment is capped at €300,000 per year and €5,500 per square meter.
• The property can be new, rehabilitated, or bought as a “Vente en l’État Futur d’Achèvement” (VEFA) and must comply with RT 2012 construction standards.
• The tenant’s taxable income must be below the set limit to ensure that the housing is reserved for low-income households.
• The property must be rented unfurnished, and the rent must be approximately 20% below the market rate for the entire rental period.
• The property must be located in zones A, Abis, or B1, or in some cases in zones B2 or C (Investments in zones B2 or C were possible until March 15, 2019, with approval. After this date, these zones are no longer eligible except for specific cases. To determine the property’s zoning, consult the tool on service-public.fr ).

Advantages

• A high level of tax reduction
• The possibility to benefit from a loan to grow your real estate portfolio
• A potential source of additional income for retirement if the investment is planned long-term
• The possibility of renting the property to a parent or child of the owner, provided they are not part of the same tax household and that rent and tenant income limits are respected
• For future expatriates: investments made from January 1, 2019, onward can still benefit from the tax reduction, even in years when they are not French tax residents.

OptiFi’s Opinion

Is tax-efficient real estate (Pinel and others) a good deal or a scam?
This was the question I raised in a previous blog post because the Pinel scheme has many appealing aspects, at least on paper.
If you find a Pinel-eligible apartment at market price, we would have no reservations. The tax advantage would then be a genuine “plus” for this investment.
However, our study of various Pinel programs often leaves us perplexed: it is common to see acquisition prices that are 25% to 50% higher than older properties in the same area. In such cases, the tax reduction of up to 21% loses its appeal.
OptiFi, therefore, exercises caution when it comes to acquiring new apartments eligible for Pinel.
Not all Pinel investments are inherently bad, but the focus should be on examining the essential characteristics of a property: its location, the quality of the construction and amenities, and finally, its price! This evaluation applies to all real estate investments, with or without tax benefits.
Lastly, although it’s rarely discussed, the Pinel scheme can also apply to properties purchased in the secondary market. To be eligible, the apartment must be renovated to meet the requirements of the Pinel law. We find this type of project to be much more promising. Indeed, acquisition and renovation costs can be better controlled. Of course, this approach will require time and effort, but your personal involvement will likely enhance the investment’s profitability.