Reduction in Real Estate Appreciation: Which Renovations Are Deductible?

Capital gains realized on the sale of a property other than a primary residence are taxable. However, certain expenses and improvements may be deductible.

Capital gains on real estate are defined as the difference between the purchase price and the resale price of a property (house, apartment, building lot, etc.). 

If this difference is positive, it is a capital gain; if it is negative, it is a capital loss. The gain realized from a real estate capital gain is subject to income tax (at a rate of 19%) and social security contributions (17.2%), with rates that decrease depending on how long the property has been held. The gross capital gain is generally calculated by the notary handling the sale of the property.
 

Possible Exemptions
A full exemption from capital gains tax on real estate is possible in certain specific cases governed by law:
• Sale of a primary residence
• Sale price less than €15,000
• Property owned for more than 22 years
• Property resold for the purpose of conversion into public housing
 

For properties other than a primary residence, an exemption is available if the proceeds from the sale are used to purchase a primary residence within two years, or, under certain conditions, in the case of the sale of a residence in France by a non-resident or a sale by elderly or disabled individuals.
 

Reduction of Capital Gains on Real Estate: What Expenses Are Deductible
Certain expenses are deductible from the sale price of the property, such as costs related to mandatory inspections, real estate agency fees, or compensation paid to a tenant for eviction. The capital gains tax regime also allows for the deduction of acquisition costs (notary fees, registration taxes, etc.), which are estimated at a flat rate of 7.5% if no supporting documentation is provided.
 

In addition, certain home improvements may qualify for a capital gains deduction, provided they have not already been deducted from taxable income (expenses deductible from property income or for which a tax credit was claimed). The types of work eligible include:
• Construction or reconstruction
• Improvements (installation of new equipment that does not alter the structure of the property)
• Reconstruction and expansion (work that alters the building’s structural framework, interior remodeling work that can be considered reconstruction, work that increases the living area)
• Demolition (work involving a dilapidated residence)
 

These may also include road, utility, and distribution costs, as well as architect’s fees. However, work related to maintenance and repairs—whether major or minor—is excluded. Generally speaking, work performed to maintain or restore a property without altering its original fixtures or layout is not included. Interest on loans taken out to finance the work is also not included in the capital gain.
 

Required Documentation
To be tax-deductible, the renovations must be performed by a contractor and paid for by the seller. Supporting documentation is required, unless the property has been owned for at least 5 years. In that case, expenses related to the renovations are estimated at a flat rate of 15% of the purchase price, with no requirement to provide supporting documentation.

Capital gains on real estate are a key factor to consider when selling a property. By understanding the available exemptions and allowable deductions, you can optimize your tax situation. For more information, consult a tax advisor or the relevant authorities.