The IFI (Real Estate Wealth Tax) concerns tax households that own a taxable assets net worth exceeding 1,3 million euros. The management this heritage is governed by precise rules, particularly with regard to the tax calculationThis is determined according to a scale progressive, and to know its taxable baseThe taxpayer must assess the market value of their real estate assets and rights on January 1st of the tax year.
From this gross value, it is possible to deduct a number of debts to obtain the net taxable value. This is the principle of deductibility Liabilities. But what exactly are deductible debts for the French wealth tax (IFI)? Are there any exceptions? Follow our advice to gain a clearer understanding and optimize your tax return.
List of debts that can be deducted from the IFI tax base
For a debt to be deductible from the IFI (French wealth tax), the tax authorities require that it meet 3 cumulative conditions, as defined in the General Tax Code:
- To exist on January 1st of the tax year.
- To be owed by the taxpayer or one of the members of their tax household.
- To be directly linked to a real estate asset subject to the IFI (French wealth tax).
The liabilities in question can therefore be of different kinds:
- debts incurred for the acquisition of taxable real estate or property rights.
- Debts related to the acquisition of shares or stock in companies (such as real estate civil companies – SCI) up to the fraction of their value representing taxable real estate.
- Expenses for improvement, construction, reconstruction or expansion work.
- Maintenance expenses and condominium fees that the owner must bear.
- Certain property-related taxes, such as property tax or tax on vacant dwellings (the theoretical IFI is also deductible).
Debts deductible from the French wealth tax (IFI): ceilings, limitations and special cases
However, there are exceptions. Some debts cannot be deducted from the IFI (French wealth tax), while others can only be partially deducted.
Taxes not deductible from the IFI (French Wealth Tax)
While some taxes are deductible, this is not the case for the housing tax, income tax (including that on property income), as well as social security contributions.
Family loans
Loans taken out from a family member are generally not tax-deductible. However, if the taxpayer can prove to the tax authorities that the loan was taken out under normal market conditions (payment schedule, interest rate, actual repayments), the deduction may be allowed.
Credits in fine
Bullet loans, where the principal is repaid in a single lump sum at the end of the contract, are subject to a specific deduction rule. The deduction is limited to the sum of the theoretical annual payments remaining until the scheduled maturity date, calculated using a straight-line amortization method.
Debts related to exempt assets
The treatment of debts depends on the situation of the asset to which they relate.
- Full ownership and total exemption : Liabilities related to an asset totally exempt from IFI (for example, an asset considered professional) are not deductible at all.
- Dismemberment of property In the case of a dismemberment of ownership, only theusufructuary is liable for the IFI on the value of the property in full ownership. The bare owner is not taxed. Debts incurred by the usufructuary are therefore deductible under the standard legal conditions.
- Partial exemption Debts related to partially exempt assets (such as woodlands and forests) are deductible only up to the taxable portion of the asset. If an asset benefits from exoneration of 75%, then only 25% of the associated debt will be deductible.
Special case: debts related to the main residence
The primary residence benefits from a 30% reduction on its market value. Unlike other partially exempt assets, the debts associated with it (mortgage, etc.) are fully deductible. However, this deduction cannot exceed the taxable value of the property, i.e., 70% of its total value.
For example, for a main residence worth €2,000,000, its taxable value is €1,400,000. The taxpayer can deduct all associated debts up to this amount of €1,4 million.
Deduction limit for large estates
For taxpayers whose real estate assets have a gross value exceeding €5 million, a debt capping mechanism applies. If the total amount of debt exceeds 60% of the asset value, only 50% of the debt exceeding this threshold is deductible.
Wealth tax deduction: the solidarity donation solution
Despite the deduction of your liabilities, your taxable base Is your IFI (French real estate wealth tax) still high? To effectively reduce the amount of your IFI, a solution exists: the donation to a foundation recognized as being of public utility, such as the Pasteur Institute of Lille.
Donations subject to the French wealth tax (IFI) entitle you to a tax reduction of 75% of their amount, up to a limit of €50,000 per year. This act of generosity allows you to substantially reduce your tax burden while supporting a cause close to your heart.
At the Pasteur Institute of Lille, donations are directly and entirely allocated to our research teamsThey provide essential support for advancing medicine and fighting diseases that affect us all.
