Renting of a part of the principal residence

Can I rent out my main residence ?

The principal residence is the tenant’s usual and effective home. It is therefore the property that you occupy with your family for most of the year, as opposed to a second home.

Renting your principal residence: what is it ?

It is entirely possible to rent or sublet part of your principal residence. However, depending on the case, the income from this rental may be subject to income tax. If you rent one or more rooms of your main residence, it is a furnished rental and the rents you receive are therefore taxable in the category of industrial and commercial profits.

Renting your principal residence: what is the tax treatment?

However, these rents can be tax exempt, provided that :

The rent is within reasonable limits set by the administration and indexed each year according to the rent reference index.

Indeed, the rents must not exceed a certain ceiling (reasonable rents), set for the annual rent per m2 in 2020, excluding charges, at €190 in Ile de France and €140 in the other regions (cf. official public finance bulletin BOI-BIC-CHAMP-40-20 § 160);

Example

You rent a furnished room of 18 m² in your main residence in Paris to a student.
To be tax-exempt, the monthly rent excluding charges must not exceed in 2020 : (184 x 18) / 12 = 285 €.

In the regions, if you rent a furnished room of 18 m² in your main residence to a student, you will be exempt from tax if the monthly rent excluding charges does not exceed in 2016: (1140 x 18) / 12 = 210 €.

If your rent exceeds the ceiling, 100% of it will have to be declared and taxed in the category of industrial and commercial profits (BIC).

What about guest rooms ?

In some cases, the renting of guest rooms can give the right to tax exemptions. For this, you must respect 3 conditions:

The rental must be furnished;
The room(s) must be rented on a regular basis as a bed and breakfast. It is not mandatory to rent exclusively to tourists. The rental period can be monthly, weekly or daily. But, be careful, the tenant does not have to take up residence there;
The amount of income received from the rental of this room must be less than 760 € per year including tax. Indeed, the limit of 760€ is understood to include taxes and applies to the total revenue from the rental and ancillary services such as breakfast. (cf. Official Bulletin of Public Finances BOI-BIC-CHAMP-40-20 §60)
Tax system applicable in the absence of exemption

When the income is taxable, the tax regime is determined according to the criteria of common law. From a tax point of view, the rents from furnished rentals must be declared in the category of industrial and commercial profits.

Capital gains on the sale of your main residence.

Normally, the capital gain realized in case of sale of your main residence is totally exem pted.  In principle, if the principal residence is also used for a professional activity, the exemption cannot be granted to the part of the residence that is used for this professional activity.

Indeed, when the building or part of the building sold is partly used for residential purposes and partly for professional purposes, only the fraction of the capital gain relating to the sale of the residential part that constitutes the principal residence of the seller can benefit from the exemption. Thus, if a person allocates part of his property all year round to a furnished rental activity, such as a bed and breakfast, he cannot normally benefit from the capital gains exemption in the event of resale, to the extent of the proportion of his property allocated to this activity.

However, there is no published case law or doctrine on this point.  It is possible to think that if a person rents out a single room in his or her house, this should not pose a problem, but this is not the case for a person who rents out a very large part of his or her property.

Consequently, a person who is considering selling his property should stop all furnished rental activity at least one year before the sale. In the case of a regular but seasonal rental activity, it is undoubtedly possible to argue that the property remains fully eligible for the capital gains exemption. But on this point too, no decision or doctrine has been published.