Overview of the Duflot Law [guest article]

The Duflot law is a government measure allowing the reduction or cancellation of the amount of taxes for taxpayers who invest in new real estate intended for rental.

The Duflot law makes it possible to obtain up to 18% of the purchase price of a property in tax savings.

This property must be in BBC (Low Consumption Building) or RT 2012 (thermal regulations 2012) standards.

The investment is capped at €300,000 per year and the apartment must be rented out for a period of nine years. It will also be necessary to respect an amount of rent according to the geographical zone ( see the Duflot A, A Bis, B1, B2 zoning ) of the property and the future tenant will have to respect ceilings of resources.

It is important to note that this investment can be made without any initial contribution and is intended for all taxpayers paying tax in France regardless of the amount of their taxes.

The primary purpose of the Duflot law is to achieve tax savings.

Indeed, the French taxpayer has here the opportunity to “place” the money of his taxes on a safe medium, namely real estate, and more precisely new real estate.

Indeed, the Duflot law will make it possible to realize up to 6000 € of tax per year and this for 9 years.

This is the result obtained if one invests in a property of €300,000 since the tax reduction is equivalent to 18% of the price of the investment.

But how do these benefits translate in practice?

You are going to buy a new apartment in VEFA (Sale in the Future State of Completion) which will be intended for rental for 9 years.

When you go to do your tax return under the Duflot Law, you will mention that this apartment is placed under the regime of the same name and specify the amount of your purchase.

At that time, when the Public Treasury receives your declaration, it will take it into account in the calculation of your taxes and when you receive your tax notice, magic! The amount of your taxes will be reduced!

And this will be the case for the 9 years you rent the property.

At the end of 9 years, you can resell the property and also realize a capital gain.

To fully understand the principle of the Duflot Law, let’s take a very simple example:

You are buying a new BBC-type home worth €200,000 that you are renting for nine years. You benefit from a reduction of 18% of the property, i.e. €36,000 over 9 years. Thus your investment allows you to save 4000 € each year.

Now a second example you pay today 3000 € of tax per year and you would like to stop paying it. If you invest with the Duflot device in a BBC-compliant property for €150,000, you will reach your objective with a reduction of €3,000 per year for nine years. 

As you can see, the Duflot law is a very interesting and very powerful device for significantly reducing tax. But this device also meets other prerogatives such as:

When you make an investment under the Duflot law, in most cases you take out a loan to finance this purchase. The credit offers death and disability insurance that insures the credit and protects your family in the event of death. The heirs and beneficiaries will therefore obtain an apartment fully paid for if something bad happens to you. This is an excellent solution which, for a low cost of insurance (about €40/month on average), can provide you with a very large capital (the value of a property is very rarely below €100,000) and this from the signature at the notary . Your family is thus protected.

By investing in real estate, you build up real estate assets that you can either keep or pass on. The tax savings and the rents collected allow you to use a leverage effect which largely finances your purchase. As a general rule, in this type of investment, over the first 9 years when you benefit from tax savings, you only finance 20% to 30% of the property , the rest being financed by rents and tax savings.

Depending on the financial package, the duration of the credit, the amount of the contribution, you can generate additional income from the rents collected from this investment. Indeed it is common knowledge that real estate is an excellent investment for earning additional income, rents.

Today, and even more in the years to come, retirement pensions will be less and less important. It is therefore necessary to plan your retirement now. Investing in real estate with a view to collecting rents when you retire is an interesting solution to make up for your loss of purchasing power.

What do you think of the investment in the Duflot Law? Are you interested in the advantages, in particular tax advantages, that it offers? Is “classic” real estate investment your preference?