IFI and LMP Status: Judge’s Reminder on the Concept of Business Income

The real estate wealth tax (IFI) provides for an exemption for properties held as part of a professional furnished rental business (LMP), provided that this business is recognized as the taxpayer’s primary source of income.
 

But the definition of this “primary” nature remains one of the most sensitive aspects of the system.
A ruling handed down by the Grasse Judicial Court in July 2025 clarified that the assessment must be based on the activity’s net taxable income, rather than gross revenue. This interpretation puts many investors at risk and complicates the LMP classification.

The status of a professional furnished rental landlord: an attractive but demanding framework
The LMP regime, defined in Article 155 of the General Tax Code (CGI), is based on two cumulative conditions:
1. Rental income must exceed 23,000 euros per year.
2. This income must represent more than 50% of the tax household’s professional income.
 

It is this second condition that is at the center of the debate. Some taxpayers believed that the comparison should be based on gross rental income, while others argued it should be based on net taxable income after deducting expenses and depreciation. The Grasse ruling settles the matter: it is indeed the net income that must be used.
In practice, this interpretation excludes taxpayers who report a loss due to high operating expenses or depreciation, even if their rental revenue is substantial.

Persistent legal uncertainty
This interpretation, already mentioned in a ministerial response from 2024, now has the force of case law, though it does not settle the debate. Indeed, the text of the General Tax Code refers to “revenues,” a term that, in principle, refers to a gross amount.
 

This discrepancy between the literal wording and the interpretation of the text creates ongoing uncertainty: an investor may be classified as LMP one year and as non-LMP the next, depending on depreciation or the structure of their business income.
 

However, the loss of professional status has serious consequences:
• Furnished properties once again become subject to the IFI (Wealth Tax), which can increase the tax burden by 0.5% to 1.5% of the value of the assets.
• Losses can no longer be offset against total income.
• The exemption for professional capital gains no longer applies in the event of a sale.
This uncertainty requires increased vigilance in the accounting and tax monitoring of furnished rental properties. For wealth management advisors, it is becoming essential to anticipate these fluctuations and make clients aware of the variability of the tax status.

The importance of documentation and overall consistency
Pending any legislative clarification or a decision by the Council of State, caution remains warranted.
 

Experts recommend:
• Accurately documenting household income and its sources;
• Monitoring the net income from furnished rentals to avoid unintentional changes in tax status;
• Not taking the IFI exemption for granted without conducting an annual review of your tax situation.
 

The issue goes beyond taxation alone: it is a matter of ensuring the financial coherence of the business by integrating rental income into an overall strategy for succession planning, diversification, and liquidity.
In other words, the LMP status remains attractive, but it now requires careful and dynamic management—a far cry from purely declarative approaches.