Rental Investments: LMNP Schemes in the Crosshairs of the French Ministry of Finance

In the 2025 Finance Bill (PLF), a surprise awaits investors in the LMNP rental program: the possible reinstatement of depreciation deductions when calculating the capital gain realized upon the sale of a property used for furnished rental activities.
 

What does the text say?

 The 2025 Finance Bill proposes that, in the event of the sale of a property as part of a non-professional furnished rental activity (LMNP), the total amount of depreciation deductions claimed under the actual taxation system be included in the calculation of the capital gain. This change would be implemented by adding a new paragraph to Article 150 VB of the General Tax Code. The explanatory memorandum specifies that this measure aims to correct a specific feature of the tax regime for non-professional furnished rentals that contributes to tensions in the rental market.
 

In practice, this means that the deducted depreciation will be taxed under the capital gains tax regime for individuals, subjecting the realized capital gain to a capital gains tax (19%) as well as social security contributions (17.2%).
 

How would including depreciation in the calculation of capital gains change the result? 

Currently, LMNP property owners benefit from depreciation, which allows them to reduce their tax liability. However, the amount of depreciation deducted for tax purposes is not taken into account when calculating capital gains. The 2025 Budget Bill proposes to include this amount in the calculation of capital gains upon the sale of the property. For example, for a property purchased for €100,000 and sold for €200,000, with €20,000 in depreciation deductions, the taxable capital gain would increase from €100,000 to €120,000.
 

Reminder: What is depreciation under the LMNP scheme? Depreciation is a tax deduction mechanism that allows non-professional furnished rental property owners to deduct a portion of the value of their property, renovation work, or furnishings from their taxes. This mechanism plays an important role in the ability of LMNP property owners to reduce their tax liability.
 

Should LMNP owners start worrying yet? 

Even if the bill were to be adopted as is, its impact would be relatively minimal for the vast majority of landlords, for two main reasons. First, the capital gains tax for individuals includes a system of statutory allowances that reduces the amount of taxable capital gains over the years. Thus, after 22 years of ownership, landlords are fully exempt from capital gains tax, and after 30 years, from social security contributions.
 

Second, capital gains tax does not apply in cases of gifts or inheritance. However, furnished rental activity generally ceases after several years, and the property returns to the landlord’s private estate, often through a gift or inheritance. Many properties are therefore sold only long after their acquisition, which results in a longer tax exemption period.
 

A Bill Whose Future Remains Uncertain It is important to note that the text of the 2025 Budget Bill still has a long way to go before it is finally adopted. Many changes may still occur between the initial version and the final version. 

Some lawmakers have already expressed their intention to oppose this measure or to call for it to be limited solely to short-term furnished rentals, echoing an amendment added by the National Assembly in January 2024, which provided for the same measure exclusively for the short-term furnished rental business. That provision did not survive its passage through the Senate in May, as senators took a cautious approach due to the potential real-world impact of such a measure. This argument could be raised again when the text of the 2025 Budget Bill comes before lawmakers.