PINEL LAW - HOW A RENTAL INVESTMENT CAN REDUCE YOUR TAXES!

The beautiful Pinel Law is a real estate tax exemption product created in 2014. It allows for a reduction in income tax of up to 21% of the value of a newly acquired rental property. You can earn rental income and also benefit from a tax reduction spread over up to 12 years, potentially saving you up to 63,000 euros in taxes. The scheme will end on December 31, 2024 

1- What is it? 

You benefit from a tax reduction if you are fiscally domiciled in France and have made eligible real estate investments under the Pinel law. 

Created to support investment in rental real estate, this scheme allows the buyer to reduce their income tax amount if they acquire a new or off-plan (vente en l’état futur d’achèvement - VEFA) property between January 1, 2014, and December 31, 2024. 

The tax reduction applies if the property is rented out for a minimum period of 6 years, and by respecting the investment ceilings per fiscal household, i.e., up to two investments per year. 

It aims to support rental supply in areas where demand exceeds supply and to offer properties with capped rents to households facing difficulties in accessing the housing market but not eligible for social housing. 

2- What are the benefits of the Pinel law? 

Reduce income tax 

The acquired property must be rented out for a duration of 6, 9, or 12 years. Based on this duration, the income tax reduction rate varies. 

Rent to family members 

With this scheme, you also have the option to rent out your property to your ascendants or descendants. The tenant can be your child or parent as long as they are not part of your fiscal household. Their reference fiscal income must not exceed the regulatory ceilings. 

Become a property owner without a down payment and build a real estate portfolio. 

3- How to benefit from it? 

All taxpayers can invest in the Pinel Law. You just need to meet 2 conditions: 

• Have your tax residence in France 

• Investment ceiling per fiscal household, up to a maximum of 2 investments per year (300,000€ at a price of 5,500€ per square meter). 

Properties eligible for the Pinel scheme are subject to rent regulation, meaning that a calculation is carried out to determine their price. Rent amounts are determined based on 3 criteria: 

• Investing in a property located in an eligible Pinel zone 

• Respecting the predefined rent ceilings in the zone where the property is located 

• Habitable surface area of the property. 

4- What are the conditions? 

The tax reduction applies to operations carried out between September 2014 and December 31, 2024, on properties meeting the following criteria: 

- New, under construction, having undergone renovation or rehabilitation works, off-plan (VEFA). 

- The property must be rented out unfurnished for primary residence use for a minimum period of 6, 9, or 12 years. 

- The property must be rented out within twelve months following the completion date of the property. 

- Compliance with rent ceilings per square meter varying by zones, 

- Rent to tenants whose annual resources are below a ceiling set by decree. 

- The property must comply with energy and thermal standards. 

- Located in an area where demand for rentals exceeds supply. 

There are three so-called "tight" zones. Zone A bis: Paris and its immediate suburbs (76 municipalities in the Île-de-France region) Zone A: Cities spread across regions (including Lyon, Marseille, Montpellier, Lille, Bordeaux…) and 650 municipalities in the Paris metropolitan area. Zone B1: all metropolises with over 250,000 inhabitants (Nantes, Grenoble, Reims…) as well as the outer suburbs of Paris. 

It is worth noting that since January 1, 2021, the Pinel law only applies to properties located in a collective building. It no longer applies to individual and detached housing. 

5- Changes in 2024? 

The Pinel scheme was extended in 2020 for the period from 2021 to 2024. This extension notably includes a reduction in the tax reduction rate. In 2024, the tax reduction provided by the Pinel law is 9% for a 6-year commitment, 12% for 9 years, and 14% for 12 years. 

In parallel with the current Pinel scheme, since January 2023, the Government has opted for the introduction of an enhanced scheme, the Pinel Plus, which will accompany the Pinel law until its end and allow its beneficiaries to continue enjoying the full tax advantage, which can reach 12%, 18%, and 21% by complying with the new energy and thermal standards for properties from January 2025. 

To benefit from it, you must acquire a new property with very good energy performance, complying with the RE2020 regulations on environmental standards related to building construction as of January 2025. 

Or choose to acquire a property located in a neighborhood designated as a priority area by urban policy, i.e., urban territories considered priorities due to their socio-economic situation (high unemployment rates…) 

So, classic Pinel or Pinel Plus? 

It depends on the property purchase date. Before December 2022, it is the Pinel scheme. 

Rent and tenant resource ceilings remain the same in both options, and it is still the rental duration - 6, 9, or 12 years - that will define the amount of the tax reduction. 

The difference lies in the introduction of more responsible housing on the market. Thus, under the Pinel scheme, the property owner can benefit from a tax reduction of up to 4,500€ per year, which differs from Pinel Plus, where the tax reduction can reach 6,000€ per year. 

6- How does it work? 

The Pinel Law limits investment to 2 properties per household per year. 

The tax reduction calculation is based on a maximum acquisition amount of 300,000€ per year and within the limit of a price of 5,500€ per square meter. The tax deduction will only apply to these amounts, even if the property cost exceeds them. 

The income tax reduction will be canceled if these conditions are not met. 

There is still time to take advantage of the Pinel scheme until December 31, 2024, to acquire an eco-responsible property. Afterwards, there are already alternatives such as the LMNP status (Non-Professional Furnished Landlord), combining advantageous taxation and profitability.