This article is provided for general information only and does not constitute legal, tax or investment advice. Rules change and individual situations differ. Always confirm the current position with a qualified professional before acting.
The roofer’s quote for the cottage near Bergerac comes to €14,000. The owners, a retired couple from Bristol who have lived in the Dordogne for six years, let the cottage unfurnished to a local family and had assumed the bill was simply the price of owning an old house. It isn’t only that. Because the cottage is let unfurnished, most of that €14,000 can come off their French taxable income this year, pensions included. The mechanism is called the déficit foncier, and it has been part of the French tax code for decades.
The finance ministry set out the basics in a note on the déficit foncier published on 9 September 2026. We have taken every figure in it, checked each one against the tax code and the tax administration’s own doctrine, corrected two small slips, and added what the note doesn’t cover: the order in which the deficit is calculated, what happens to the part you can’t use, the three-year trap, how it works for an owner who lives outside France, and why a UK resident gets far less out of it than a French one.
What a déficit foncier is, and what it isn’t
Rent from a home let unfurnished (location nue) is property income, revenus fonciers, and it is taxed as part of your income. Your revenu global, the figure income tax is worked out on, is your property income plus everything else the household earns: salaries, pensions, business profits. If you are on the actual-costs regime, the régime réel (by choice or because you have to be), you deduct the costs of the property from the rent. When the costs are larger than the rent, the result is negative. That negative figure is the déficit foncier.
What makes it valuable is where it goes. The part of the deficit that comes from costs other than loan interest can be deducted from your global income, so it reduces the tax on your salary or pension, not just on the rent. That is unusual in French tax, where a loss in one category normally stays in that category. It only works for unfurnished lettings. A furnished let is taxed as commercial income (BIC), where a loss can never be set against other income and the advantages lie elsewhere, mainly in depreciation, which we cover in our LMNP piece.
Micro-foncier or réel: only one of them can produce a deficit
There are two ways of taxing unfurnished rent, and the déficit foncier exists only under one of them. Under article 32 of the tax code, you are automatically on the micro-foncier when the household’s gross property income for the year is €15,000 or less, however many months the property was let, and none of your properties is under a special regime. You declare the gross rent only, and the tax office deducts a flat 30% for costs, whatever you actually spent. Since nothing real is deducted, the micro-foncier can never produce a deficit.
Above €15,000 of gross rent a year, the réel applies automatically, and you deduct the costs you actually paid during the tax year. Below the threshold you can opt out of the micro and into the réel. The option is made by filing the réel return within the normal deadline for the first year it is to apply, and it binds you for three years. After that it stays in force for as long as you remain within the micro’s scope, until you cancel it.
| Micro-foncier | Réel | |
|---|---|---|
| Who | Gross rent of €15,000 or less, no special-regime property | Above €15,000 automatically, or by option |
| Costs | Flat 30% allowance, real costs ignored | Real costs paid in the year |
| Deficit possible? | No | Yes |
| Return | Gross rent straight onto the income tax return | Form 2044 (or 2044-SPE) |
| Lock-in | None | Three years if you opted in |
Two groups of owners are kept out of the micro whatever their rent, and so are always on the réel: owners of shares in a property-letting SCI or similar company taxed as a partnership who don’t also let a property directly, and owners claiming certain depreciation schemes on new homes. That includes the Jeanbrun depreciation for flats bought from 21 February 2026, which we covered in our Jeanbrun piece.
How the deficit is calculated: interest goes first
The rule that surprises most owners is the order of the sums. The tax administration’s doctrine (BOI-RFPI-BASE-30-20) treats your rent as paying your loan interest first. Only then are the other costs deducted. The consequence is that a deficit caused by interest can never reach your other income: it can only be carried forward against future rent.
The doctrine’s own example: rent of €1,500, loan interest of €2,100 and other costs of €2,900, so a deficit of €3,500. The rent is deemed to cover interest first, leaving €600 of interest uncovered. That €600 can only be used against rent in the next ten years. The other €2,900 comes from ordinary costs, and it is that part which can be deducted from your global income. If you are borrowing heavily and spending little on the property, you will have a deficit on paper and very little of it will reduce your income tax.
The ceilings: €10,700, €15,300 and €21,400
Under article 156, I, 3° of the tax code, the part of the deficit coming from costs other than interest can be deducted from your global income up to a ceiling each year, on condition that the property stays let for three years (below).
| Ceiling per year | When it applies |
|---|---|
| €10,700 | The normal case |
| €15,300 | A home for which you claim one of two older deductions in article 31 of the tax code: the “Périssol” depreciation on a new home, or the “Cosse” deduction under an agreement with the Agence nationale de l’habitat (Anah) |
| Up to €21,400 | On option, to the extent of energy-renovation works that take a home from class E, F or G to A, B, C or D |
The €21,400 limit is temporary. It covers works for which you can show a quote accepted from 5 November 2022, paid between 1 January 2023 and 31 December 2027. The 2026 finance law extended the scheme from its original end-2025 date, and the tax code now requires the new energy class to be reached by 31 December 2027 at the latest. The implementing decree of 21 April 2023 still shows a 2025 payment window on Légifrance, so keep every quote, invoice and both energy certificates (DPE): the tax office can ask for a DPE before and after the works. If you can’t show the new class by the end of 2027, the extra deduction is reversed. The higher limit is an option, chosen on the 2044 return for the year of the deficit.
The energy class matters for letting as well as tax. Since 1 January 2025 a G-rated home can’t be let under a new or renewed lease. F follows in 2028 and E in 2034. Owners of a G or F flat therefore have a double reason to do the works now, and the higher deficit ceiling is designed to pay for part of them. Grants such as the Anah’s, which we covered in our Ma Prime Logement Décent piece, can come on top, but you only deduct what you paid yourself.
What happens to the part you can’t use now
Whatever is above the ceiling, and every euro that comes from loan interest, goes into a ten-year bucket that can only be used against rent. Each year your net property income is first reduced by the oldest deficits in that bucket. They cannot be moved later onto your other income.
There is a second, less well-known bucket. If your global income is too small to absorb the deductible part this year, the remainder becomes an ordinary global deficit, which can be set against your global income for the next six years. The distinction matters for retired owners with modest French income and for owners who live abroad, as the second example below shows: six years is a shorter clock than ten.
The three-year rule, and when it doesn’t bite
When you deduct a deficit from your global income, the property must stay let until 31 December of the third year after the year of the deduction. No undertaking is signed and nobody checks at the time. If you stop letting earlier, whether you sell, move in or leave it empty, the tax office reconstitutes your income for the three years before the year you stopped. You pay the tax you saved, and the deficits concerned drop back into the ten-year bucket, usable only against future rent. If the property is owned by an SCI, the partners who used the deficit must also keep their shares for the same period. Selling the shares early triggers the claw-back even if the company carries on letting.
The tax code waives the claw-back if you or your spouse suffers a serious disability (the second or third category of the social security code), is made redundant or dies. The administration adds two more cases: compulsory purchase of the property, and the merger of a property investment fund (SCPI). A sale for any other reason, however good, is not an exception.
What you can deduct, and what you can’t
Article 31 of the tax code lists the costs. In plain terms:
| Deductible | Notes |
|---|---|
| Management and administration | A caretaker’s pay, letting-agent and management fees, the syndic’s fees, legal costs, plus a flat €20 per property for sundry management costs |
| Property taxes you can’t recharge to the tenant | Taxe foncière, less the household-waste tax if you recover it |
| Repairs and maintenance | Whether caused by wear and tear or done to make the home easier to let |
| Improvements | Works that improve living conditions without changing the structure: a new kitchen or bathroom, insulation, a heating system |
| Copropriété provisions | The quarterly calls you pay, adjusted the following year for the part that turns out not to be deductible |
| Tenant’s charges you couldn’t recover | Charges you paid for the tenant and still haven’t got back by 31 December of the year the tenant leaves |
| Eviction or rehousing compensation | Paid to a tenant to free the home, for example so it can be renovated and relet |
| Insurance premiums | Landlord’s insurance, rent-guarantee insurance |
| Loan interest and borrowing costs | Interest, arrangement fees, borrower insurance, but remember they come off the rent first and can’t reach other income |
Building work that creates something new is never deductible: construction, reconstruction or extension. Adding a floor, rebuilding a collapsed wing or turning a barn into a new dwelling will usually fall on the wrong side of that line, as does work that changes the structure. The test is the nature of the work, not its cost, and it is a frequent point of dispute on audit. Keep the invoices in your name, paid during the year you claim them, and get the builder to describe the work precisely.
Worked example 1: the Dordogne cottage
Back to the couple from Bristol. They live in France, so they are French tax residents and their UK pensions (other than any government pensions) are taxed in France. The cottage brings in €9,600 of rent a year. Their costs this year: €1,800 of loan interest, €1,100 of taxe foncière, €350 of insurance, €768 of agency fees, the €20 flat management allowance, and the €14,000 roof repair.
| Step | Amount |
|---|---|
| Rent | €9,600 |
| Less loan interest first | − €1,800 |
| Rent left after interest | €7,800 |
| Less other costs (€1,100 + €350 + €768 + €20 + €14,000) | − €16,238 |
| Déficit foncier, all from ordinary costs | − €8,438 |
| Deducted from their pensions (under the €10,700 ceiling) | €8,438 |
In a normal year they would have declared €5,562 of net rent. This year they declare none, and their pensions are reduced by €8,438 on top: €14,000 less taxable income, the cost of the roof. At a 30% marginal rate that is about €4,200 less income tax. If they are covered by UK social security through an S1, they also avoid the 7.5% solidarity levy on the rent, about €420. The roof still costs them money, just a third less. In exchange, the cottage has to stay let until 31 December of the third year after this one.
Worked example 2: the Paris flat let from London
An owner who lives in London lets a Paris flat unfurnished for €18,000 a year, so the réel applies automatically. The flat is rated F, and this year they spend €30,000 on insulation, windows and a heat pump that bring it to C. Other costs: €6,000 of loan interest, €1,500 of copropriété charges they can’t recover, €1,200 of taxe foncière, €300 of insurance, €1,440 of agency fees and the €20 allowance.
Rent after interest is €12,000. The other costs come to €34,460, so the deficit is €22,460, all from ordinary costs. With the energy-works option, up to €21,400 of it can go against global income, and the remaining €1,060 goes into the ten-year bucket.
Non-residents are allowed to do this: the administration’s doctrine says people living abroad can set French-source deficits against their French-source income on the same terms as residents (BOI-IR-DOMIC-10-20-10, § 200). But a non-resident’s global income for French purposes is French-source income only. If the Paris flat is all this owner has in France, there is nothing else to deduct the deficit from.
The €21,400 becomes a global deficit carried forward for six years, and both buckets are absorbed by the flat’s future rent, about €7,540 a year once the works are paid. In practice the owner pays no French income tax and no social levies on the flat for about three years, worth roughly €6,200 at the 20% non-resident minimum rate plus the 7.5% levy. A non-resident with other French income, a French pension or a second let, gets the benefit sooner.
Then comes the UK. A UK resident is taxed in the UK on the French rent, computed on UK rules, with a credit only for the French income tax actually paid on it (article 24 of the UK-France tax treaty). The UK ignores the French deficit and draws its own line between repairs and improvements: replacing old windows with double glazing is usually accepted as a repair, while adding insulation where there was none usually isn’t. So in the year of the works, the UK may allow part of the bill, depending on that split. In the two years after, there is nothing left to deduct in the UK. The flat’s profit, about €13,500 a year, is taxed in full, with no French tax to credit, because the French deficit carried forward has wiped out the French tax.
At 40% less the basic-rate credit for interest, that is about €4,200 of UK tax in each of those years, the same as if the French deficit didn’t exist. The French income tax saving is collected by HMRC instead. What the owner keeps is the solidarity levy, about €570 a year, because the UK never credits French social levies. It is the same trap we found with the furnished-letting réel. French tax breaks on rent are worth far less to someone whose home country taxes the same rent at a higher rate.
SCIs, couples and the paperwork
An SCI that lets unfurnished and hasn’t opted for corporation tax computes its property result on its own return (form 2072). Each partner then reports their share on their personal 2044, and the deficit is used at partner level, against each partner’s own income and ceiling. That is one of the reasons an SCI stays transparent for tax rather than electing for corporation tax, which we discuss in our SCI or own name guide.
A married couple or civil partners (Pacs) file one property-income return for the whole household: both partners, plus any children and dependants attached to the tax household. The ceilings apply per return, not per person.
How to claim it, step by step
- Check you are on the réel. You are automatically above €15,000 of gross rent. Below it, opt in by filing the réel return, and remember the option binds you for three years.
- Gather the year’s figures. Rent received, loan interest and borrowing costs, then every other cost paid during the calendar year, with invoices in your name.
- Sort the works. Separate repairs and improvements, which are deductible, from construction, reconstruction or extension, which are not. For the €21,400 option, keep the accepted quote, the invoices and both DPEs.
- Fill in form 2044. Use form 2044 with your income tax return. The form does the split between interest and other costs and gives the figures to carry to the main return. Use form 2044-SPE instead if you have special properties, such as new homes under a depreciation scheme like “Borloo neuf” or listed historic buildings.
- Keep the property let. Note the date three years after 31 December of the deduction year, and don’t sell, move in or leave the property empty before it.
- Track your carry-forwards. The ten-year rent bucket and any six-year global deficit appear on your later returns and tax notices. Check them every year.
Non-residents file the 2044 with their return at the non-residents’ tax office, as explained in our non-resident tax return guide. Other schemes for landlords, such as Loc’Avantages or the Denormandie reduction for renovating older homes, are tax reductions rather than deductions, and work differently.
The decision rule
If you live in France and let unfurnished, plan big repairs and energy works for a year when you are on the réel, and spread them so each year’s ordinary-cost deficit stays under €10,700, or under €21,400 for qualifying energy works. Keep letting for three full years after the last year you use it. If you live in the UK, do the works because the flat needs them or because the energy class requires them, not for the French deduction: the UK will tax the rent anyway, and only the 7.5% levy saving survives. Don’t count on loan interest to reduce your other income. It never does.
Our view: a renovation subsidy disguised as a tax rule
We think the déficit foncier is best understood as a renovation subsidy delivered through income tax, and judged as one. For a French-resident landlord with a decent salary or pension, it turns a third or more of every repair and insulation bill into a tax saving. The temporary €21,400 ceiling, combined with the ban on letting badly rated homes, makes 2026 and 2027 the obvious window to bring an E, F or G home up to standard. Used that way, it is one of the more sensible things in the French tax code.
We are less enthusiastic about the way it is sold. The marketing of “défiscalisation par le déficit foncier” often bundles an expensive renovation programme with a loan, and the interest, which is the part that grows with the loan, is exactly the part that can never reach your other income. And for the readers of this site who live outside France, the arithmetic is thinner still. A deduction is only worth the tax it removes. If you have no other French income, it removes tax only on future rent. If you live in the UK, most of that tax was going to the UK anyway. Do the works because the property needs them. Treat the French deduction as a discount, not a reason.
Readers, have you used a déficit foncier, and did the tax office question the line between repairs and improvements? If you live abroad, did you have other French income to set it against, or did it simply roll forward? Has anyone used the €21,400 energy-works ceiling, and how hard was it to get the second DPE?
FAQ: the déficit foncier for foreign owners
What is a déficit foncier?
It is the loss you make when the deductible costs of a home let unfurnished exceed the rent, under the réel regime. The part caused by costs other than loan interest can be deducted from your other income, up to €10,700 a year (€15,300 or up to €21,400 in specific cases). The rest is carried forward against rent for ten years.
Can I have a déficit foncier on the micro-foncier?
No. The micro-foncier applies a flat 30% allowance and ignores real costs, so it can never produce a deficit. You need the réel, which applies automatically above €15,000 of gross rent a year and can be chosen below it for a minimum of three years.
Does loan interest count towards the €10,700?
No. Rent is treated as paying the interest first, and any deficit caused by interest can only be set against rent in the next ten years. Only the deficit from other costs, such as repairs, improvements, taxe foncière, insurance and management, can reduce your other income.
Can a non-resident use a déficit foncier?
Yes, on the same terms as a resident, but only against French-source income. If your only French income is the rent from the property, the deficit is carried forward and used against future rent. UK residents should also allow for UK tax on the same rent, which the French deficit does not reduce.
What happens if I sell within three years?
If you stop letting before 31 December of the third year after the year you deducted the deficit from your global income, your income for the three previous years is recalculated and the tax saved becomes payable. The exceptions are serious disability, redundancy, death, compulsory purchase and the merger of an SCPI.
