What debts are deductible under the IFI?

by | May 9, 2023 | Fiscalité internationale, IFI, Personal taxation | 0 comments

Debts on taxable (real estate) assets are deductible from the value of these assets for IFI purposes. However, this deductibility is excluded by law if the debts are not related to taxable real estate assets. This is the case, for example, for debts incurred to maintain the family’s lifestyle, to acquire non-taxable assets (such as a business) or exempt assets (such as premises used by a taxpayer for professional purposes).

Limited list of deductible debts

These debts are exclusively :

– Relating to expenditure on the acquisition of real estate assets or rights ;

– Relating to repair and maintenance expenses actually borne by the owner or borne on behalf of the tenant by the owner who has been unable to obtain reimbursement, on December 31 of the year in which the tenant left;

– Relating to improvement, construction, reconstruction or expansion expenses;

– Relating to taxes, other than those normally payable by the occupier, due in respect of the said properties. The following are deductible: property taxes, tax on vacant premises, tax on offices in Île-de-France, transfer duties pending payment on 1erJanuary, the IFI itself. Council tax, income tax (due on property income or BIC) and social security contributions on property income are not deductible.

– For expenses incurred in acquiring shares, in proportion to the value of the taxable assets.

To avoid maximizing debt deductions by means of loan contracts providing for full repayment of the principal at the end of the contract, the legislator has introduced two corrective rules.

Special case bullet or term loans

Debts corresponding to loans providing for repayment of the capital at the end of the contract taken out for the purchase of a taxable asset are deductible each year up to the total amount of the loan less an amount equal to this same amount multiplied by the number of years elapsed since payment of the loan and divided by the total number of years of the loan.

This amount is obtained as follows: total amount of loan – (total amount of loan × number of years since loan payment / total number of years of loan).

For loans without a term, the total amount of the loan less an amount equal to one-twentieth of this amount per year elapsed since the start of the loan (
CGI art 974, II
).

Restrictions and limitations on the deduction of debts

Restricting the deductibility of certain debts is not the only option chosen by the legislator, who has also opted to prohibit the deduction of certain liabilities, on the assumption that they are of little economic interest and primarily for tax purposes. These anti-abuse mechanisms, also known as safeguard clauses, apply in particular to self-dealing transactions and intra-group or intra-family financing transactions.

The law therefore prevents the deduction of liabilities arising from a self-sale. The monetization of real estate assets (obtaining cash by selling the property to a company controlled by the seller) is not a profitable optimization strategy for IFI purposes, unless the taxpayer can prove that the loan was not taken out with a primarily tax-related objective.

The debt is also disregarded when it is contracted with a member of the taxpayer’s tax household or extended family circle, or with a company controlled directly or indirectly by the taxpayer (or his household).

Où declare the liabilities to be deducted?


Debts borne by the tax household on the

er
All deductible expenses incurred on January 1 must be listed on Schedule 4 of the tax return. This appendix, divided into 4 columns, allows you to for each and the debtor to provide the following details. A number, to be entered in column 1, must be assigned to each debt.

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