Are you familiar with this special tax deduction designed to stimulate the real estate market?
The 2024 Budget Act introduces a one-time tax exemption on capital gains realized from the sale of building lots located in high-demand areas. This measure aims to stimulate the real estate market in France, where the housing shortage is worsening in high-demand areas.
ABC Zoning: Understanding High-Demand Areas
France is divided into zones A, B, and C, based on the imbalance between housing supply and demand.
Zone A bis includes Paris and 97 other municipalities in the Île-de-France region located in Essonne, Yvelines, Hauts-de-Seine, Seine-Saint-Denis, Val-de-Marne, and Val-d’Oise, as well as 26 municipalities outside Paris located in Ain, Alpes-Maritimes, Bouches-du-Rhône, Oise, Haute-Savoie, and Var;
Zone A: the Paris metropolitan area (including the Abis zone), the French Riviera, the French part of the Geneva metropolitan area, certain metropolitan areas or municipalities (e.g., Lille, Strasbourg, Lyon, Marseille, Montpellier, Toulouse, Bordeaux, Nantes, and Rennes), and 10 municipalities in the overseas departments where rents and housing prices are very high;
Zone B1 includes certain large urban areas and municipalities where rents and housing prices are high, part of the outer suburbs of Paris not located in Zone Abis or Zone A, cities in the provinces facing housing shortages, and municipalities in the overseas departments not classified as Zone A;
Zone B2: includes the central cities of certain large metropolitan areas, the outer suburbs of Paris not located in Zones Abis, A, or B1, certain municipalities where rents and housing prices are relatively high, and municipalities in Corsica not located in Zones A or B1;
Zone C: the rest of the territory.
Eligibility requirements for the tax deduction
The exceptional tax deduction on capital gains from the sale of building land is subject to a “condition regarding the densification of existing development.” Specifically, the land must be sold for the purpose of constructing one or more multi-unit buildings, the size of which must be at least 75% of the maximum size permitted by the local zoning plan. The building must be constructed within a maximum of 4 years from the date of acquisition of the land. In the event of non-compliance, the buyer is subject to a fine equal to 10% of the sale price. The preliminary sales agreement must be signed by December 31, 2025, and the sale must be completed no later than December 31, 2027.
Deduction Rates The base deduction rate is set at 60%. It is increased to 75% if the sale takes place within the scope of a complex or large-scale development project, such as a Major Urban Development Project (GOU), a Territorial Revitalization Project (ORT), or a Project of National Interest (OIN). The tax deduction may reach 85% if the purchaser of the land commits to constructing a multi-unit residential building in which at least 50% of the floor area is designated for public housing or is subject to a Solidarity-Based Lease (BRS) or a rent-to-own agreement, or is designated for intermediate housing (the Loc’Avantages program).
Social Housing Requirements
If the property is located in a municipality where the social rental housing quota is not met, the purchaser must allocate at least 25% of the living area of the newly constructed housing units to social housing.
Intra-family sales not covered
The tax exemption does not apply to capital gains resulting from sales made to a natural person who is the seller’s spouse, civil union partner, cohabiting partner, or an ascendant or descendant of the seller or of any of these persons. This also applies to a corporation in which the seller, the seller’s spouse, civil union partner, cohabiting partner, or an ascendant or descendant of any of these individuals is a shareholder or becomes a shareholder as a result of this sale.
