The Finance Law 2025 brings significant changes to the tax treatment of depreciation for non-professional furnished rentals. This evolution particularly impacts the determination of capital gains, with repercussions for taxpayers under both the real regime and the micro-BIC regime. This article analyzes the implications of these changes, while clarifying the status of depreciation in each regime and the mechanisms for tax reintegration. We also highlight practical considerations for migrated properties, as well as the responses provided by the tax administration.

I. The reintegration of depreciation under the Finance Law 2025: LMNP and real regime

The adoption of the Finance Law 2025 through Article 24 has introduced a major change for non-professional furnished landlords regarding the calculation of capital gains. Before this reform, the depreciation applied to real estate rented under the LMNP status was not included in the determination of taxable capital gains upon resale. However, the new legislation stipulates that the deducted depreciation must now be reintegrated into the calculation of capital gains when the property is sold.

This measure applies retroactively from January 1, 2025, and affects the method of calculating gross capital gains. It is now determined by the following formula:

Sale price - (acquisition price - acquisition costs - renovations + deducted depreciation)

This means that previously deducted depreciation reduces the acquisition value of the property in the calculation of capital gains. It is therefore imperative for LMNP investors to consider this evolution in their tax strategies.

Furthermore, the introduction of this reintegration of depreciation also concerns the micro-BIC regime, whose specific rules deserve to be detailed below.

II. The status of the micro-BIC regime: Reintegration of depreciation and linear reconstruction method

The micro-BIC regime, governed by Article 50-0 of the General Tax Code, is a simplified regime allowing furnished landlords to benefit from a flat-rate deduction on the income generated by the rental. This system exempts the calculation and deduction of actual expenses, including depreciation, in exchange for a flat-rate deduction based on the type and location of the property.

The tax administration specifies that "the deductions mentioned in the sixth paragraph of this article are deemed to take into account the depreciations applied according to the linear method." This clarification implies that, although the micro-BIC regime does not allow for the deduction of actual depreciations, the flat-rate deduction implicitly includes depreciation calculated according to the linear method.

Thus, although the taxpayer cannot deduct depreciation on their properties under the micro-BIC regime, these depreciations are nonetheless taken into account in the calculation of capital gains when the property is sold. In the event of a sale, the reintegrated depreciations must be treated according to a linear reconstruction method, which involves estimating the depreciations that would have been applied if the deductions had been made in the traditional manner, rather than flat-rate.

This linear reconstruction method is used to calculate the portion of implicit depreciation included in the flat-rate deduction. The depreciation period for a real estate property is generally between 20 and 50 years, and the reconstruction allows for the evaluation of the corresponding sum of these depreciations and its addition to the taxable capital gain. In practical terms, this involves tracing the depreciations deducted over the years, applying a linear method, to reintegrate this value into the capital gains calculation base.

It is therefore essential to note that, although the flat-rate deduction simplifies tax management under the micro-BIC regime, it does not ignore the reality of depreciations. These must be reintegrated upon the sale of the property to correctly calculate the capital gains, ensuring compliance with regulations.

III. The migration of the property from LMNP status to primary residence: Exemption and removal of depreciations

Another crucial aspect of the tax reform concerns properties migrated from LMNP status to that of primary residence. This migration, whether total or partial, has several tax consequences.

Indeed, if a property rented under LMNP is subsequently used as a primary residence, the reintegration of the deducted depreciations in the calculation of capital gains becomes moot, as the exemption from capital gains applies under Article 150 U of the CGI. In other words, as soon as a property becomes the primary residence of its owner, it benefits from the exemption from capital gains, provided that this residence is effectively qualified as such at the time of sale according to the criteria listed in BOI-RFPI-PVI-10-40-10-20181219.

This means that if an LMNP property is converted into a primary residence, the tax administration considers that the previously deducted depreciations should no longer be taken into account in the calculation of capital gains. The property being exempt from capital gains, the reintegration of depreciations, which had previously been considered for determining the capital gain, is canceled. This exemption applies only if the property is indeed the primary residence at the time of sale, and if no abuse of rights is found by the tax administration, under Article L64 A of the Tax Procedures Book