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Tax strategies Your expert lawyer in tax law deciphers the law very simply. With the white year in 2018, real estate investors are faced with a problem: should work be done in 2018, in 2019 or postpone it? A question that concerns all those who rent an empty property .
Understanding the tax implications of property renovations in 2018/2019:-
The government has introduced specific taxation for work carried out in 2018/2019. This paves the way for tax opportunities for those who want to work in 2018.
1) In May 2019, we will file a 2018 tax return. The tax office will calculate the salary/rent tax and cancel it because it is a blank year via the modernization tax credit recovery (CIMR). On the other hand, it will calculate the taxation resulting from exceptional income (investment income, capital gains, bonuses, etc.) and will claim the tax on this exceptional income from you.
2) If a real estate lessor has more charges than rents following major works, the deficit is deducted within the limit of €10,700 from other income known as “global income” (i.e. a gain of tax at the marginal tax bracket known as the average tax rate). ). Beyond -€10,700, the deficit is provisioned and will only be charged in subsequent years to positive property income.
The withholding tax and the white year will be accompanied by the following rules concerning the deduction of work from your rents:
1) work carried out in 2018 will be fully deducted from property income for 2018.
2) work carried out in 2018 will also be deducted from 2019 property income up to 50%.
3) the work carried out in 2019 will only be deducted from the 2019 property income up to 50%.
Tax tips to maximize deductions and savings: –
This is the first rule to know that changes the game: the allocation of allowances is 150% for work in 2018 and 50% for work in 2019. The tax authorities plan to apply it to “non-urgent work” .
Deductions for work carried out in 2018: what is the tax gain? Are they lost?
For work deducted from 2019 income, this is not a problem because we will no longer be in the white year. The deduction will save as today:
– either taxes (according to the marginal tax bracket) and social security contributions (17.2%) if the works are deducted from the rents or if the deduction results in a deferred loss.
– or tax only according to the TMI if the works create a deficit which is deducted from the overall result within the limit of €10,700.
On the other hand, the second technical aspect to be mastered in order to fully understand the article concerns the deduction of work from 2018 income! Exceptionally, the calculations will be different: it will be necessary to differentiate the useless deductions (which have no impact on the tax) from the useful ones (which lower the taxes). Remember that the tax treatment will be as follows during the famous white year:
1- If you have a positive property income and your 2018 work is charged to it, the deduction is useless: tax gain of 0 €.
2- If you have negative property income, the deduction for work between €0 and -€10,700 provides:
– A tax gain of €0 if you have no exceptional income.
– A tax reduction according to the marginal tax bracket, if you have exceptional income (for specialists, it is a gain in the TMI if you ONLY have exceptional income) 3- If you have a negative property income , the deduction of work beyond
– €10,700 creates a provisioned deficit which provides a long-term gain in tax matters according to the TMI but also in terms of social security contributions.
It remains only to mix the two exposed parameters and you will be able to understand all the possible strategies.It is necessary to combine the specific treatment of the works in 2018/2019 (abatement of 150% for the works of 2018 and 50% for 2019) with the tax impact of the abatements during the white year 2018. We can easily retain several tips simple and effective taxes for those planning work in 2018/2019:
Tip 1: No need to do any work on the year 2019.
This advice goes without saying, you don’t need to be a tax expert to have this good idea. The works of 2019 will only be invoiced up to 50%. You can do as much work as you want, the taxman will only allow you to deduct 50%. You might as well wait until 2020 and benefit from a 100% imputation since the tax treatment will be the same in 2019 and 2020. Unless you buy a property in 2019 and in this case, you can deduct 100% of your work on this building.
Tip 2: No need to do work in 2018 if they are not higher than the rents imposed. Between the drop in the tax impact of the work carried out in 2019 and the total inefficiency of the work carried out in 2018 if they are not higher than the taxable rents, a large proportion of taxpayers will have to wait until 2020 to consider renovating their rental property.
To take advantage of the system put in place by the tax authorities and get out of it with a tax gain compared to the usual system, major work will have to be done in 2018. This may indeed allow a surplus of levies possible only during the blank year in some situations. The idea of being a winner will be based on the creation of a land deficit via the 2018 works expenses.
Tip 3: without exceptional income, the works in 2018 must be greater than “twice the rents + twice €10,700” .
If your 2018 jobs are greater than “rents * 2 + 10,700 * 2”, then you will be a winner. This is true in case you do not have windfall income. In other words, if your income is composed solely of salaries and rents.
We advise you to contact us to assist you in the calculations. Each situation may lead to several factors that must be taken into account to accurately assess the tax gain: the tax bracket may change between 2018 and 2019, exceptional income may not be sufficient to charge the €10,700 of work, calculations change for a property that starts being rented in 2019… I can think of many situations that make working a good idea in 2018 and many more where it doesn’t. It could be useful to pay a few hundred euros to our law firm so that it calculates to the nearest euro the tax gain according to the year in which you carry out the work so that you make the right choice.
Our law firm is at your disposal. Do not hesitate to ask us about the opportunity to start construction sites in 2020 after the COVD 19 crisis.
