The tax on real estate wealth (IFI) is calculated on the net value of the assets, after subtracting of deductible debts of wealth tax.
Deductible debts of wealth tax
The debts that can be deducted from the tax on real estate wealth must meet 3 criteria:
- Exist on January 1st of the tax year, i.e. on January 1st 2022
- They must be borne personally by a member of the tax household and effectively supported by him/her;
- Be related to taxable assets
The deductible debts are in particular the expenses relating to the acquisition of a property, its improvement, its reconstruction, its extension, the maintenance of the property or the payment of the taxes concerning it.
As an example, one finds in deduction the real estate tax, the tax on vacant premises, the debts contracted for the financing of work, or the theoretical IFI.
NB: Debts related to the principal residence are deductible for their total amount without exceeding the taxable value of the principal residence (i.e. 70% of the market value of the principal residence).
Example : A person has acquired his principal residence with a real market value of 4 million € partly by taking out a loan of 2 million €. His property tax is € 10,000. The taxable value of the main residence is therefore €2.8 million for the IFI after application of the legal allowance of 30% (4 million-1.2 million). As long as the total amount of the debts does not exceed the taxable value of the residence, it will be possible to deduct the total amount of these debts.
Some debts are not deductible, even if they meet the 3 conditions.
These debts include, in particular, debts relating to the acquisition of property that is exempt from the IFI, or in the case of a partial IFI exemption (e.g. wood and forests). In this case, the debt is deductible only up to the taxable fraction of the value of the property.
In addition, special deduction rules for the acquisition of a taxable asset are applied for bullet loans (repayment of the principal at the end of the contract) and for loans that do not provide for a term for repayment of the principal (article 974 of the CGI).
Family loans may, in most cases, not give rise to a deduction.
The wealth tax ceiling
The deductible debts whose objective is mainly fiscal are capped when the two following conditions are met:
- The taxable assets exceed 5 million
- The amount of these debts exceeds 60% of the taxable assets.
Consequently, only half of the tax-related debts exceeding 60% are deductible.
Other debts (whose main purpose is not tax-related) remain fully deductible. Thus, this ceiling does not apply to debts for which the taxpayer can prove that they were not incurred primarily for tax purposes.
Example: Mr. X and his wife have taxable assets of 8 million and a deductible debt of 6 million.Taking 60% of the assets = 8 million x 60% = 4.8 million. Therefore, the ceiling applies because the debt of 6 million is greater than 4.8 million.Regarding the part of the debt exceeding the 60% = 1.2 million (6 million - 4.8 million): only half of 1.2 million is deductible. Deductible debt = 4.8 + (1.2 / 2) = 5.4 million deductible.
Déborah Zerbib has several years of experience in the field of personal and international taxation after a Master II specialized in Tax Law.