An Internet user is considering a strategy of multiple purchases to cause and maintain a land deficit, so as to limit taxation. Is this strategy viable and risk-free? Can we then to be considered a merchant of goods ? Is there a risk of requalification by the tax administration?
“To date, I have a lot of property income from which I only deduct some loan interest and I want to reduce my balance sheet by buying a property to renovate with a lot of work. If I buy this property today and do enough work on it to reduce my balance sheet to 0, it will be perfect, but will I have any obligations to rent this property? And if so how long?
Is it possible for me to sell it at the end of the year, for example? And if I buy a building that I cut into several lots, am I entitled to deduct the work?
1/ Works and rental obligation.
If the work creates a land deficit (imputation of land income on the overall income), “the building must be assigned to rental until December 31 of the third year following the imputation”.
In the event of the departure of the tenant, the property must be immediately re-let so as not to lose this advantage.
2/ Capital gain of the “single individual” investor.
The individual who resells real estate is subject to the capital gains regime.
Here is an example after 1 year of ownership, for a property purchased for €100 and resold for €000, with no work eligible to be deducted:
The amount payable is mitigated by the deduction of acquisition costs.
It is often more interesting, however, to keep the property for at least 5 years to benefit from a work package:
This is particularly interesting if you take care of the maintenance/improvement of your property yourself.
In our previous example, the capital gain of €20 is erased after 000 years:
Obviously, if you have carried out invoiced work, this question arises less.
Finally, it should be remembered that if after 3 years of rental following the work, the property purchased becomes the main residence of its owner, it will then be exempt from capital gains on resale after its effective occupation for a reasonable period.
3/ Goods merchant: a commercial activity.
Article l35-I of the CGI details the activities that relate to industrial and commercial profits.
These are mainly classic real estate development operations: purchase/resale of entire real estate or resale in pieces,
2 important points:
The character usual of this type of activity (not a first project…).
Le plan to resell the good (speculative intention).
The property dealer will also be liable for VAT on its margin.
How then to avoid a reclassification as a property dealer?
In novice state / little experienced in this type of operation.
By being able to prove that we had no intention of reselling at the time of purchase (your personal/professional situation has changed, etc.).
4/ Consequences of requalification as a property dealer.
If the tax authorities believe that you are a vile speculator who is not at his first attempt, the consequences are as follows:
VAT that can be assessed on the entire value of the property.
Taxation of capital gains with penalty (scale up to 41% with 80% increase).
In the end, depending on the frequency of purchases and the intended purpose, it may now be necessary to consider a change of status...
I advise you to get closer to your CCI for example. They often offer 30-minute appointments with a lawyer or notary, one morning a month to help project leaders.