French real estate generates two distinct layers of tax obligations for US citizens: the French layer (income tax and social charges on rental income and capital gains, plus potential IFI wealth tax), and the US layer (full reporting of the same income on Form 1040 alongside the French treatment).
The US–France tax treaty assigns primary taxing rights over French real estate income and capital gains to France under Articles 6 and 13. The treaty does not eliminate US obligations; it establishes which country has the primary claim. The Foreign Tax Credit on Form 1116 reduces US tax dollar-for-dollar for French income taxes paid, within the passive category basket. Social charges add an additional 17.2% layer with disputed but administratively agreed creditability.
Unfurnished Rental Income — Revenus Fonciers
Two Calculation Methods
Rental income from unfurnished French property (revenus fonciers) is taxable under the French progressive barème. Two regimes determine how the taxable amount is calculated:
Micro-foncier regime: Available when gross annual revenus fonciers do not exceed €15,000. A flat 30% abattement is applied automatically; 70% of gross rental income is taxable. No deduction of actual expenses is permitted. The regime applies by default; the taxpayer may opt out and elect régime réel instead.
Régime réel: Mandatory when gross revenus fonciers exceed €15,000. Available by election below the threshold when actual deductible expenses exceed the 30% abattement benefit.
Deductible Expenses Under Régime Réel
Deductible expenses include mortgage interest, repairs and maintenance (but not improvements or construction), property management fees, insurance, taxe foncière, and applicable condominium charges. Depreciation (amortissement) is not deductible under revenus fonciers.
Deficit Treatment
If deductible expenses exceed gross rental income, a deficit arises. Up to €10,700 of the deficit per year may be offset against overall income (including employment income). Any deficit above €10,700, and any portion not absorbed against overall income, carries forward for 10 years against revenus fonciers only.
US Reporting
French revenus fonciers are reported on Schedule E of Form 1040. They are generally passive income for Form 1116 purposes. French income tax paid is creditable in the passive category basket.
When to consult a specialist: The election between micro-foncier and régime réel is a multi-year commitment with meaningful tax consequences when actual deductible expenses are close to the 30% threshold. The SCI IS election is irrevocable. French capital gains calculations, principal residence exemption documentation, and the coordination of French withholding at closing with the US foreign tax credit position on Form 1116 all require careful sequencing. A qualified US–France tax specialist can assess your specific circumstances. Request Introduction.
Furnished Rental Income — BIC Regime
Rental income from furnished French property is classified as Bénéfices Industriels et Commerciaux (BIC), not revenus fonciers. The property must be furnished with sufficient equipment and furniture for normal habitation to qualify.
LMNP (Non-Professional) vs. LMP (Professional)
| Classification | Conditions | Key Tax Treatment |
|---|---|---|
| LMNP (Loueur en Meublé Non Professionnel) | Gross furnished rental income under €23,000/year, OR under 50% of total household income | Deficits not deductible from other income; carry forward against future furnished rental income |
| LMP (Loueur en Meublé Professionnel) | Gross furnished rental income at least €23,000/year AND at least 50% of total household income | Deficits fully deductible from global income; professional capital gains regime on sale |
Micro-BIC and Régime Réel Under LMNP
The micro-BIC option applies when gross BIC income does not exceed €77,700. A 50% abattement reduces the taxable base. No actual expenses are deducted.
Under régime réel, actual expenses are deducted including, critically, amortissement (depreciation) of the property and furniture over their useful lives. LMNP régime réel is widely used because depreciation can substantially reduce taxable BIC income, sometimes to zero.
Important note for US owners: French amortissement does not reduce the US cost basis of the property. If the US owner takes US depreciation under a separate calculation (which follows US rules), the adjusted cost basis diverges between the French and US books. At the time of sale, the US capital gain is calculated on the US adjusted basis, which may be materially lower than the French acquisition value. Specialist advice is required to manage this divergence.
Capital Gains on French Real Estate
Base Rate
| Component | Rate |
|---|---|
| French income tax (IR) | 19% |
| Social charges (prélèvements sociaux) | 17.2% |
| Base total | 36.2% |
Surtax on Large Gains
An additional surtax applies when the net taxable gain after abatement exceeds €50,000:
| Net Taxable Gain After Abatement | Surtax Rate |
|---|---|
| €50,001 – €100,000 | 2% |
| €100,001 – €150,000 | 3% |
| €150,001 – €200,000 | 4% |
| €200,001 – €250,000 | 5% |
| Above €250,000 | 6% |
The surtax applies on top of the 36.2% base rate. The effective maximum rate on gains above €250,000 is therefore 42.2%.
Abatement for Duration of Ownership
Two separate abatement schedules reduce the taxable gain based on holding period:
For income tax (IR):
| Holding Period | Annual Abatement |
|---|---|
| Years 1–5 | 0% |
| Years 6–21 | 6% per year |
| Year 22 | 4% (completing 100%) |
| After 22 years | Fully exempt from IR |
For social charges:
| Holding Period | Annual Abatement |
|---|---|
| Years 1–5 | 0% |
| Years 6–21 | 1.65% per year |
| Year 22 | 1.60% |
| Years 23–30 | 9% per year |
| After 30 years | Fully exempt from social charges |
A property held between 22 and 29 years is fully exempt from the 19% IR component but still partly subject to the 17.2% social charges component. The common assumption that “22 years means no French tax” is incorrect for the social charges layer.
Principal Residence Exemption
A gain on the sale of the taxpayer’s principal residence (résidence principale) is fully exempt from French capital gains tax with no minimum holding period. The property must have been the taxpayer’s actual habitual residence; documentation of occupancy may be required on audit.
US Reporting of Capital Gains
French real estate capital gains are reported on Form 8949 and Schedule D of Form 1040. Gains on property held more than one year are long-term capital gains under US rules (0%, 15%, or 20% rates plus the 3.8% net investment income tax where applicable). The 19% French IR on the gain is a creditable foreign income tax in the passive category basket on Form 1116, claimed in the year the French tax is paid at closing through the notaire. The 17.2% social charges component carries contested but administratively agreed creditability.
IFI — Impôt sur la Fortune Immobilière (Wealth Tax)
What the IFI Is
The IFI replaced the ISF (Impôt de Solidarité sur la Fortune) effective January 1, 2018. Unlike the ISF, which applied to all net wealth, the IFI applies exclusively to real estate assets and real-estate-backed financial instruments.
Who Is Subject
| Taxpayer Category | IFI Applies To |
|---|---|
| French tax resident | Net real estate assets worldwide if total exceeds €1.3 million |
| Non-resident US citizen | Net real estate assets located in France only if total exceeds €1.3 million |
IFI Rate Schedule
| Net Real Estate Asset Value | IFI Rate |
|---|---|
| Up to €800,000 | 0% |
| €800,001 – €1,300,000 | 0.50% |
| €1,300,001 – €2,570,000 | 0.70% |
| €2,570,001 – €5,000,000 | 1.00% |
| €5,000,001 – €10,000,000 | 1.25% |
| Above €10,000,000 | 1.50% |
IFI liability arises when total net real estate assets exceed €1.3 million. A smoothing mechanism (décote) reduces the abruptness of the threshold for portfolios valued between €1.3 million and €1.4 million.
Assets in Scope
- Direct ownership of real property (principal and secondary residences, rental properties)
- Shares in non-IS SCIs and other transparent civil companies, proportionate to real estate value
- Real estate-backed financial instruments (OPCIs with real estate fraction ≥20%)
Outstanding mortgage loans and other qualifying liabilities are deductible from the IFI base, up to the total value of taxable real estate assets.
IFI Is Not Creditable on the US Return
IFI is a wealth tax levied on the value of assets, not on income derived from those assets. Under IRC §901, a foreign tax is creditable only if it qualifies as an income tax. The IFI fails this requirement. It produces no US tax offset.
For US persons with significant French real estate portfolios, the IFI is a pure additional cost that compounds the French income tax and social charges already owed on rental income and capital gains. Pre-departure planning for US persons considering establishing French residency should factor in IFI exposure on worldwide real estate assets.
Social Charges and the De Ruyter Question
The Rule for US Persons
Social charges (prélèvements sociaux) at 17.2% apply to French real estate income (revenus fonciers, BIC income) and capital gains for all French tax residents and for non-residents with French-source real estate income. The rate components are: CSG 9.2%, CRDS 0.5%, and prélèvement de solidarité 7.5%.
Why De Ruyter Does Not Apply
The de Ruyter exemption (CJEU C-623/13, 2015) reduced social charges on investment income for persons insured under an EU or EEA member state’s social security system, from 17.2% to 7.5%. The United States is not an EU or EEA member. The US–France Totalization Agreement is a bilateral instrument and does not extend to the de Ruyter framework.
US citizens owning French property owe the full 17.2% social charges on rental income and capital gains, regardless of whether they are covered by US or French social security. There is no mechanism under the US–France bilateral arrangements to reduce this rate.
Non-Resident Fiscal Representative
Non-resident sellers of French real estate with a sale price exceeding €150,000 must appoint a DGFiP-accredited fiscal representative (représentant fiscal accrédité) before the closing date. The representative:
- Guarantees payment of French capital gains tax to the DGFiP
- Signs the capital gains declaration (Form 2048-IMM) on behalf of the non-resident seller
- Receives the withheld tax from the notaire and remits it to the DGFiP
The notaire will not finalize the deed transfer without proof of representation. A US citizen selling French real estate as a non-resident must identify and engage an accredited representative well in advance of the anticipated closing date.
SCI — Société Civile Immobilière
The SCI is a civil company used to hold French real estate. It is not a commercial entity and does not appear on the per se corporation list under US Treasury Regulation §301.7701-2(b)(8).
| SCI Tax Regime | US Classification |
|---|---|
| IR-transparent (default, no IS election) | Partnership (2+ members) or disregarded entity (single member); income flows to US shareholders proportionately |
| IS election (irrevocable) | Check-the-box analysis applies; may be treated as a foreign corporation, potentially triggering Form 5471 obligations |
A US person holding an interest in an IR-transparent SCI reports their proportionate share of French rental income and capital gains on the US return each year, whether or not the SCI distributes cash. A US person owning ≥10% of an SCI treated as a foreign partnership may also be subject to Form 8865 filing obligations.
Technical References
French real estate capital gains are governed by Articles 150 U through 150 VH bis CGI. The IFI is codified in Articles 964 through 983 CGI. Revenus fonciers are governed by Articles 14 through 33 ter CGI; the micro-foncier regime is in Article 32 CGI. The LMNP/LMP regime is in Article 155 IV CGI. Social charges on real estate income are governed by Articles 1600-0 C through 1600-0 S CGI. The US–France treaty (Article 6) allocates primary taxing rights over income from immovable property to France; Article 13 allocates primary taxing rights over real estate capital gains to France. Foreign tax credit mechanics are governed by IRC §904 and Form 1116. LMNP depreciation does not affect US cost basis; US capital gain calculations are performed under IRC §1001 using US adjusted basis.
Frequently Asked Questions
Is French rental income taxable in both France and the US?
Yes. A US citizen who is a French tax resident reports French rental income on both the French return and the US return (on Schedule E). The Foreign Tax Credit on Form 1116 provides a partial offset for French income tax paid, allocated to the passive category basket. French social charges on rental income (17.2%) are also owed by US persons; their creditability on the US return is a contested but administratively agreed position.
What is the French capital gains rate on the sale of French real estate?
The base rate is 36.2%: 19% French income tax plus 17.2% social charges. A surtax of 2% to 6% applies on net gains above €50,000 after abatement. Both components are reduced by separate abatement schedules based on holding period. After 22 years, the income tax component is fully exempt. After 30 years, the social charges component is also fully exempt.
How does the capital gains abatement work for French real estate?
Two separate schedules apply. For income tax: 0% for years 1 to 5; 6% per year for years 6 to 21; 4% in year 22 (reaching 100%). For social charges: 0% for years 1 to 5; 1.65% per year for years 6 to 21; 1.60% in year 22; and 9% per year for years 23 to 30 (reaching 100%). A property held 22 to 29 years is fully exempt from the income tax component but still partly subject to social charges.
Do US citizens owe the IFI wealth tax?
Yes, if net real estate assets exceed €1.3 million. French tax residents owe IFI on worldwide real estate assets above this threshold. Non-resident US citizens owe IFI on French real estate assets only. The IFI is not creditable on the US federal income tax return because it is a wealth tax, not an income tax, and does not satisfy IRC §901.
Are French social charges on real estate income creditable against US tax?
The IRS and French authorities have agreed that prélèvements sociaux are creditable foreign income taxes for Form 1116 purposes. This position has been contested in US courts and proceedings; it should be treated as an administratively agreed but contested position. The de Ruyter exemption, which reduces social charges for EU/EEA-insured persons, does not apply to US persons.
Does the de Ruyter exemption apply to US citizens owning French property?
No. The de Ruyter exemption reduces social charges from 17.2% to 7.5% for persons insured under an EU or EEA member state’s social security system. The United States is not an EU or EEA member. US citizens owning French property owe the full 17.2% on rental income and capital gains regardless of their social security coverage status.
Do non-resident US citizens need a fiscal representative when selling French property?
Yes, if the sale price exceeds €150,000. Non-resident sellers must appoint a DGFiP-accredited fiscal representative before the closing. The representative guarantees payment of French capital gains tax to the DGFiP and signs the capital gains declaration at closing. The notaire will not complete the deed transfer without proof of representation for qualifying sales.
How is an SCI taxed for US purposes?
An SCI that has not elected IS is treated as a partnership or disregarded entity for US tax purposes, not as a corporation. A US person holding a share in an IR-transparent SCI reports their proportionate share of French rental income and capital gains on their US return each year, as if they held the real estate directly. If the SCI elects IS, check-the-box rules apply and it may be treated as a foreign corporation, potentially triggering Form 5471 obligations.