The 2025 Finance Act brings significant changes to the tax treatment of depreciation for non-professional furnished rentals. This development particularly affects the determination of real estate capital gains, with repercussions for taxpayers under both the actual regime and the micro-BIC regime. This article analyzes the implications of these changes, while clarifying the treatment of depreciation under each regime and the mechanisms for fiscal reintegration. We also highlight practical considerations for migrated properties, as well as the responses provided by the tax authorities.
I. The reinstatement of depreciation under the 2025 Finance Act: LMNP and the actual regime
The adoption of the 2025 Finance Act through article 24 introduced a major change for non-professional furnished landlords regarding the calculation of real estate capital gains. Prior to this reform, depreciation charged on properties rented under the LMNP status was not included in the determination of taxable capital gains upon resale. However, the new legislation provides that depreciation previously deducted must now be reinstated in the calculation of the capital gain when the property is sold.
This measure applies from January 1, 2025, retroactively, and affects the method of calculating the gross capital gain.
It is now determined by the following formula:
Sale price - (purchase price – acquisition costs - renovation costs + deducted depreciation)
This means that previously deducted depreciation now reduces the acquisition value of the property in the capital gain calculation. It is therefore imperative for LMNP investors to consider this change in their tax strategies.
Furthermore, the introduction of this depreciation reinstatement also concerns the micro-BIC regime, whose specific rules deserve further detail below.
II. The fate of the micro-BIC regime: Reinstatement 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 rental landlords to benefit from a flat-rate deduction on income generated by the rental. This system exempts taxpayers from calculating and deducting actual expenses, including depreciation, in exchange for a flat-rate deduction based on the type and location of the property.
“the deductions mentioned in the sixth paragraph of this 1 are deemed to take into account the depreciation charged according to the straight-line method.”
— Tax administration
This clarification implies that, although the micro-BIC regime does not allow the deduction of actual depreciation, the flat-rate deduction implicitly includes depreciation calculated according to the straight-line method.
Thus, although the taxpayer cannot deduct depreciation on their properties under micro-BIC, these depreciations are nevertheless taken into account in the calculation of the capital gain on the sale of the property. In case of sale, the reinstated depreciation must be treated according to a linear reconstruction method, which consists of estimating the depreciation that would have been applied had the deductions been made in the usual way 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 of a property is generally between 20 and 50 years, and the reconstruction allows the assessment of the sum corresponding to these depreciations and its addition to the taxable capital gain. Concretely, this involves retracing the depreciation deducted over the years, applying a straight-line method, to reintegrate this value into the capital gain 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 depreciation. These must be reinstated upon sale of the property to correctly calculate the real estate capital gain, to ensure taxation in accordance with the regulations.
III. Migration of the property from LMNP status to main residence: Exemption and cancellation of depreciation
Another crucial aspect of the tax reform concerns properties migrated from LMNP status to that of main residence. This migration, whether total or partial, has several tax consequences.
Indeed, if a property rented under LMNP is later used as a main residence, the reinstatement of depreciation deducted in the capital gain calculation becomes moot, because the capital gain exemption then applies, pursuant to article 150 U of the General Tax Code. In other words, once a property becomes the owner's main residence, it benefits from the capital gain exemption, 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 main residence, the tax authorities consider that previously deducted depreciation should no longer be taken into account in the capital gain calculation. The property being now exempt from capital gains, the reinstatement of depreciation, previously considered to determine the gain, is cancelled. This exemption applies only if the property is indeed the main residence at the time of sale, and if no abuse of rights is found by the tax authorities, pursuant to article L64 A of the Tax Procedures Book.
It is therefore important to emphasize that migrating a property from LMNP status to main residence must be carried out in compliance with tax rules. Such a move must not be motivated by a desire to evade tax liabilities, under penalty of reclassification by the tax authorities, pursuant to the provision mentioned above.
Consequently, the property must indeed meet the definition of main residence, and the sale of the property must be sufficiently distant in time to avoid any requalification.
Conclusion
The tax reforms introduced by the 2025 Finance Act profoundly change the tax management of properties rented under LMNP, under both the actual regime and the micro-BIC regime. The reinstatement of depreciation in the calculation of real estate capital gains, now required for disposals made from 2025, represents a significant change for investors. Moreover, migrating a property from LMNP status to main residence offers tax advantages but requires particular attention to meet the exemption conditions.
Taxpayers must carefully examine each situation on a case-by-case basis, taking into account the tax implications of the new rules before disposing of or transforming their property. In all cases, consultation with a tax law professional is strongly recommended to navigate these new obligations effectively.
Written by Antoine Aufrand — Partner Figen AI
