How is LMNP depreciated?
Micco will explain all aspects of LMNP depreciation in detail, including its definition, duration, and deductible expenses, to help you fully understand and effectively use this policy.
Choosing the status of a non-professional furnished rental (LMNP) when buying property to rent out is a wise investment decision. It not only provides a stable source of income but also offers tax benefits, especially by using depreciation to reduce taxable income.
Micco will explain all aspects of LMNP depreciation in detail, including its definition, duration, and deductible expenses, to help you fully understand and effectively use this policy.
Before diving into these details, Micco stands as an all-in-one financial platform tailored for business creators, facilitating a comprehensive array of services. These include streamlined procedures for company registration, professional bank account establishment, capital deposit management, and more.
Micco's commitment to empowering business creators extends to:
- Effortless company registration processes
- Seamless professional bank account setup
- Convenient capital deposit management solutions
- A suite of additional financial tools and resources catered to entrepreneurs
With Micco, business creators can access a one-stop solution designed to streamline their financial operations and support their growth endeavors effectively.
Table of Contents
- Benefits of LMNP
- Basic Concept of LMNP Depreciation
- Types and Durations of Depreciation
- Real Estate Depreciation Duration
- Furniture Depreciation Duration
- Renovation Depreciation Duration
- Deductible Expenses and Depreciation
- Rules for Calculating LMNP Depreciation
- Example Calculation
1. Benefits of LMNP
Opting for a non-professional furnished rental (LMNP) status when buying property for rental is a smart investment decision. It not only provides a stable income but also offers tax benefits, especially through depreciation to reduce taxable income.
If your annual rental income does not exceed €23,000 and is less than 50% of your total household income, you can enjoy various tax benefits under the LMNP status. All rental income is taxed under the Industrial and Commercial Profits (BIC) regime, and you can choose between the micro-BIC regime or the actual regime, as detailed below:
Advantages of the Micro-BIC Regime
In LMNP, the micro-BIC regime allows you to benefit from a 50% deduction on rental income, meaning only half of the income is taxed. For holiday rentals, the deduction is even higher at 71%. If your annual rental income does not exceed €72,600 (regular rental) or €176,200 (holiday rental), you can choose this regime.
Advantages of the Actual Regime
If your annual rental income exceeds €72,600, you need to opt for the actual regime. This regime allows you to deduct all expenses and costs related to the rental activity, including depreciation. This means you can significantly reduce your taxable income by deducting various operational costs and depreciation, thereby lowering your tax burden.
2. Basic Concept of LMNP Depreciation
One of the significant advantages of LMNP is the ability to reduce taxes through depreciation. Depreciation refers to the gradual decrease in the value of an asset due to wear and tear over time. In LMNP, depreciation is categorized into three types: real estate depreciation, furniture depreciation, and renovation depreciation. It's important to note that the amount of depreciation cannot exceed the total deductible expenses minus the annual rental income.
3. Types and Durations of Depreciation
Real Estate Depreciation Duration
The duration of real estate depreciation depends on each component of the property. Land itself cannot be depreciated, but different parts of the property (such as the roof, electrical system, etc.) have different depreciation periods. Generally, the property can be depreciated over 25 to 40 years. Specifically:
- Roof: 25 years
- Electrical system: 25 years
- Waterproofing: 15 years
- Elevator: 15 years
- Interior fittings: 15 years
- Exterior fittings: 15 years
- Main structure: 55 to 80 years
For example, if you buy an LMNP property for €300,000, under the actual regime, you can depreciate 90% of the value, which is €270,000, over 30 years.
Furniture Depreciation Duration
Furniture depreciation applies only to items costing more than €600, and these must be purchased after you start the rental activity. The depreciation periods for furniture are:
- Furniture: 10 years
- Appliances: 5 years
- Bedding: 6 years
- Electrical equipment: 8 years
- Computer equipment: 3 years
Renovation Depreciation Duration
Similar to furniture, renovation depreciation applies to projects costing more than €600. The depreciation periods for renovations generally range from 5 to 25 years, specifically:
- Masonry work: 15 years
- Electrical work: 20 years
- Plumbing: 10 years
- Flooring: 15 years
- Kitchen: 10 years
- Flooring installations: 5 years
- Paint and wallpaper: 10 years
4. Deductible Expenses and Depreciation
1. Deductible Expenses
Under the actual regime, you can deduct various expenses related to the rental activity in LMNP. These expenses include:
- Property insurance
- Residence tax and property tax
- CFE social charges
- Property management fees
- Legal fees for property purchase
- Accounting fees (keeping records is mandatory under the actual regime)
- Real estate agency or property management fees
- Property maintenance costs
- Purchases of supplies related to the rental (up to €500)
- Loan interest and fees
- Utility costs (water, electricity, gas)
- Internet subscription costs
- Provisions for rent arrears
- Legal fees related to tenant disputes
2. Specific Depreciation Items
Depreciation of Purchase Costs
Purchase costs (the property's purchase price) can be depreciated, provided the property is bought for furnished rental. The start date for declaring the rental activity is the purchase date, and rental income must be declared in the same year, even if it's zero, to immediately deduct purchase costs.
Depreciation of Renovation Costs
Renovation costs are depreciated according to the periods mentioned earlier. For multiple renovation projects by the same company, separate invoices should be issued for each project for depreciation purposes.
Depreciation of Furniture
Furniture depreciation has shorter periods but effectively reduces taxable income. A fully furnished rental property should include at least the following items:
- Tables and chairs
- Complete bedding
- Storage units or bookshelves
- Lighting fixtures
- Curtains or blinds
- Oven or microwave and stove
- Refrigerator and freezer
- Kitchen utensils and tableware
- Household cleaning equipment
5. Rules for Calculating LMNP Depreciation
1. Depreciation Calculation Rules
LMNP depreciation is calculated linearly, meaning it is spread evenly over the years. Each component is depreciated separately, and the land value cannot be depreciated.
2. Example Calculation
Suppose you buy an LMNP apartment for €300,000. You can depreciate 90% of its value (€270,000) over 30 years, resulting in an annual depreciation of €9,000. Additionally, you buy furniture and appliances for €6,000, which are depreciated over 10 years at €600 annually. You also carry out plumbing work for €2,000, depreciated over 10 years at €200 annually.
Thus, the average annual depreciation for the first 10 years is €9,800, and €9,000 for the subsequent 20 years.
LMNP depreciation is a powerful tool that helps investors reduce their tax burden effectively. By understanding the basic concepts, types, and durations of depreciation, as well as deductible expenses, you can optimize your tax strategy and maximize your investment returns.
If you have any LMNP-related business needs, Micco provides a full range of services from setting up LMNP to tax filing.
As a financial services company, Micco provides comparable services and solutions tailored to the needs of modern businesses. With a user-friendly platform, competitive pricing, and a commitment to customer satisfaction, Micco is a viable option worth exploring.
Whether you're a freelancer, startup, or established enterprise, Micco offers the tools and support needed to streamline financial operations and drive business growth. Check out Micco today to discover how it can complement your business banking needs.
.jpg)
.jpg)
