What tax applies to property co-ownership in furnished rental?
Written by: The Editorial Team
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5–7 minutes
Property ownership division in furnished rental represents an increasingly popular wealth strategy among real estate investors. The tax treatment of ownership division in furnished rental involves a distribution of rental income and tax charges between the usufructuary and the bare owner. Only the usufructuary receives the rents and bears taxation on furnished rental income, while the bare owner declares no income during the period of ownership division. Let's discover in detail how this specific tax treatment works and what opportunities it offers to the different parties.
Fundamental principles of ownership division in furnished rental
Property division consists of separating the full ownership of a real estate property into two distinct rights: usufruct and bare ownership. In the context of furnished rental, this legal technique presents significant tax particularities that deserve special attention.
The distribution of rights between usufructuary and bare owner
The usufructuary has the right to use the property and to receive its fruits, that is to say rental income. He also bears the costs of ordinary maintenance and repairs. The bare owner, for his part, retains ownership of the property without being able to use it or receive rents during the period of division. This separation of rights creates a specific tax allocation of reporting obligations.
In furnished rental, the usufructuary operates the property as part of an activity as a furnished rental operator, whether professional (LMP) or non-professional (LMNP). This distinction will have a determining impact on the applicable tax regime.
Tax treatment applicable to the operating usufructuary
The usufructuary who receives the rents must declare this income in the category of Business and Industrial Profits (BIC), and not in that of rental income. This tax classification offers considerable advantages in terms of depreciation and deduction of expenses.
The micro-BIC regime: simplicity and speed
If annual receipts do not exceed certain thresholds, the usufructuary may opt for the micro-BIC regime. This regime allows for a flat allowance of 50% on declared income, intended to cover all expenses. No justification of actual expenses is necessary, which considerably simplifies reporting obligations.
However, this simplified regime does not allow for the deduction of depreciation or actual expenses, which may prove less advantageous for significant investments.
The real regime: maximum tax optimization
The actual taxation regime generally represents the most advantageous option for investors in divided furnished rental properties. It allows for the deduction of all actual expenses borne by the usufructuary, in particular:
- Loan interest if the usufructuary financed the acquisition of his usufruct
- Management and administrative fees
- Co-ownership charges not recoverable
- Insurance premiums
- Maintenance and routine repair expenses
- Property tax
- Depreciation of usufruct and fixtures
Usufruct depreciation constitutes a major tax advantage. The usufructuary can depreciate the value of their usufruct right over the duration of the dismemberment, thereby creating a deductible charge that reduces taxable income without actual cash outlay.
The ability to depreciate usufruct in furnished rental property represents a unique tax optimization lever that can lead to zero taxation or even to the constitution of reportable deficits.
The bare owner's tax situation
The bare owner finds themselves in a particularly favorable tax situation during the period of dismemberment. Receiving no income from the property, they have no tax return to file concerning this property during this period.
The absence of taxable income
Unlike a bare rental where the bare owner could be taxed on a share of rental income, in furnished rental property, all income is attributed to the usufructuary. This characteristic makes dismemberment in furnished rental property a particularly suitable tool for transferring assets while minimizing taxation during the dismemberment period.
The bare owner nonetheless bears major repairs and non-routine co-ownership charges, in accordance with the Civil Code, but these expenses generate no tax deduction during the dismemberment.
The reconstitution of full ownership
Upon extinction of the usufruct, whether by the death of the usufructuary or at the expiration of a temporary dismemberment, the bare owner automatically recovers full ownership of the property. This reconstitution occurs without additional taxation, which constitutes a major patrimonial advantage.
Comparative table of tax regimes in property division
| Criterion | Usufructuary in micro-BIC | Usufructuary in real regime | Bare owner |
| Income declaration | Yes, with 50% deduction | Yes, with deduction of actual expenses | No declaration |
| Possible depreciation | No | Yes (usufruct and furniture) | Not applicable |
| Deduction of expenses | Flat-rate (50%) | Actual deductible expenses | No deduction |
| Loan interest | Non-deductible | Deductible | Non-deductible |
| Capital gains taxation | Upon disposal of the usufruct | Upon disposal of the usufruct | Upon disposal of the bare ownership |
Social contributions and additional levies
Beyond income tax, the usufructuary must also pay social contributions on income from furnished rental. These contributions represent a global rate of 17.2% and apply to the taxable result derived after deduction of expenses and depreciation under the actual regime.
Under the status of Non-Professional Furnished Lessor (LMNP), these social contributions are calculated on the taxable profit after application of all allowances and depreciation. This constitutes a substantial advantage compared to standard rental income where contributions apply to a broader base.
Tax optimization strategies
Property dismemberment in furnished rental offers several tax optimization levers that deserve to be exploited intelligently according to your wealth situation.
The acquisition of temporary usufruct
The purchase of a temporary usufruct over a determined period (for example 15 or 20 years) allows you to benefit from a reduced initial investment compared to acquisition in full ownership. The usufructuary can then fully amortize the value of its usufruct over the duration of the co-ownership, thus creating a significant tax burden that can neutralize rental income.
This strategy is particularly suitable for investors seeking supplementary income during their professional career, while preparing their retirement with optimized taxation.
The donation with reservation of usufruct
With a view to estate planning, an owner can give the bare ownership of a furnished rental property to their children while retaining the usufruct. This transaction presents several tax advantages:
- Gift duties are calculated solely on the value of the bare ownership, reduced according to the age of the donor
- The usufructuary continues to receive rental income and declare it for tax purposes
- Upon their death, full ownership is reconstituted with the bare owners without additional succession rights
- The property thus gradually leaves the donor's taxable estate
According to common practice in wealth management, donation with reserved usufruct in furnished rental represents one of the most effective structures for transferring assets while retaining income and optimizing succession taxation.
The editorial team
Passionate about overseas real estate, we follow daily the tax incentive schemes in the DOM-TOM. Our objective: to give you the keys to invest peacefully in Guadeloupe, Martinique, Reunion, Mayotte, French Guiana or Polynesia, with clear information and practical advice.