Real estate wealth tax: how to reduce the bill?
The real estate wealth tax (IFI) has been in effect since January 1, 2018. It applies to all taxpayers whose net worth of real estate assets exceeds 1.3 million euros. This heritage includes all property and real estate rights held directly and indirectly. However, there are solutions to reduce the bill or legally escape this tax.
Reduce your IFI by selling to diversify your assets
The first and most obvious option is to drastically reduce your real estate assets. You can have the value of your property estimated with a real estate professional so you know which property to sell and at what price, while taking into account capital gains tax. You can then reallocate the proceeds from the sale to assets excluded from the IFI base, such as investments in securities, works of art, jewelry or even luxury watches.
If you absolutely want to stay in real estate, you can turn to SCPI shares bought on credit. SCPI income is always considered as property income and is taxed up to the marginal tax bracket plus social security contributions. However, by investing on credit, you will be able to subtract from your property income all the financial charges that you bear during the year (loan interest, bank charges, loan insurance, etc.) and thus reduce the tax burden on your income.
Reduce your IFI by reinvesting in little or no taxed real estate
Another interesting solution is to invest in exempt assets up to 75% of their value of the IFI such as vineyards, forests or agricultural land. Acquiring bare ownership is also a good option. This allows you to buy housing at a greatly discounted price by paying only for bare ownership of the property. In addition, it is exempt from Tax on Real Estate Fortune (IFI) for the duration of the dismemberment (between 15 and 20 years). If the property is purchased on credit, loan interest is deductible from property income.
Finally, you can always turn to professional furnished rentals to keep your real estate assets without being taxed. To benefit from this status, the rental activity must generate more than 23,000 euros in revenue per year, and constitute more than 50% of the activity income of all members of the tax household.
Reduce your IFI by making a donation
By making a temporary gift of usufruct to a less fortunate relative, you automatically lower the amount of your IFI. This solution is practical and effective only in the short term because the property will return to your assets within 5 to 10 years following the donation. The other, more radical option remains the organization of the transmission of your assets (to your children), for example by making a donation of the taxed property (s). Housing will then come out of your tax base.
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