As
you probably know, the PINEL law is a tax regime for investing in new real estate that allows investors to benefit from a tax reduction of up to 21% of the property’s cost over 12 years. The PINEL law can be an excellent investment strategy that will reduce your income tax through significant tax exemptions… but above all, it is about making a good real estate investment for those who can avoid the many pitfalls! This is the cornerstone of your project: tax exemption for the sake of taxing is of no interest. Taxation is never a goal. Before seeking a reduction in income tax, you must aim to make a good investment, which means a profitable investment! The return on investment must be your top priority! Tax benefits are just an additional advantage that will turn a good investment… into an excellent investment. As such, the real estate investor tempted by the PINEL law must be particularly selective and not just listen to the beautiful sales pitch of the asset management advisor, the tax seller, or the real estate agent who has nothing to sell you. Remember that these professionals are paid a commission ranging from 8% to 10% of the property’s selling price, which amounts to between €15,000 and €20,000 in commission for a property valued at €200,000. This method of compensation corrupts the purpose of your advisor’s advice! Therefore, you will need to multiply contacts and, above all, conduct your own market analysis. (A first step to understanding your real estate investment and empowering yourself to avoid pitfalls is to buy my latest book “Investing in Real Estate”).
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Summary of the tax framework of the PINEL law 2020.
The PINEL law is:
· Investing in a new building, purchased in VEFA or built by the taxpayer through an individual house builder ;
· Investing in an area considered to be lacking in housing where there is high rental pressure ;
In ABIs areas (includes Paris and 29 municipalities of the small Parisian crown); It involves investing in an A, Abis, or B1 area (see “A new reform of the PINEL zoning in the 2019 finance law?”). Pending a new zoning for 2019, the eligible areas are as follows: eligible for the PINEL law in 2018;In part A (includes the urban area of Île-de-France, the Côte d’Azur, and the French part of the Geneva agglomeration); Eligible for the PINEL law in 2018;In zone B1 (includes agglomerations of more than 250,000 inhabitants, the Greater Paris crown, a few expensive cities like Annecy, Bayonne, Cluses, Chambéry, Saint-Malo, or La Rochelle, overseas departments, Corsica, and other islands not connected to the mainland; Eligibility for the PINEL law in 2020; 
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· Benefit from a reduction in income tax of up to 21% of the property’s cost, due to:
-
- 2% per year for the first nine years of the lease;
- 1% per year for the 10th, 11th, and 12th years of rental.
· Taxation of net rents after charges and loan interest received by the investor in PINEL at the income tax of the property income category,
This tax mechanically reduces the appeal of the tax reduction for investors taxed on income in the highest marginal brackets. Ultimately, it is still a very good tax system that will allow low-tax rate taxpayers (TMI at 14%) to benefit from a significant reduction in income tax for 6 years, 9 years, or 12 years, and highly taxed taxpayers (TMI at 30%, 41%, or 45%) to be very low on the rental income received (and that is not already wrong).
· The tenant must have limited resources with a ceiling set by decree
:
| Household composition | Zone A bis | Zone A | Zone B1 | Zone B2 | Zone C |
|---|---|---|---|---|---|
| Single person | €38,465 | €38,465 | €31,352 | €28,217 | €28,217 |
| Couple | €57,489 | €57,489 | €41,868 | €37,861 | €37,861 |
| 1 dependent person | €75,361 | €69,105 | €50,349 | €45,314 | €45,314 |
| 2 dependent persons | €89,439 | €82,776 | €60,783 | €54,705 | €54,705 |
| 3 dependent persons | €107,053 | €97,991 | €71,504 | €64,354 | €64,354 |
| 4 dependent persons | €120,463 | €110,271 | €80,584 | €72,526 | €72,526 |
| Additional amount per additional dependent person | €13,421 | €12,286 | €8,990 | €8,089 | €8,089 |
· The rent will be capped according to a maximum rate per m²:
| Location of the housing | Monthly rent ceilings per m² | |
|---|---|---|
| 2020 | ||
| Zone A bis | €17.17 | €17.43 |
| Zone A | €12.75 | €12.95 |
| Zone B1 | €10.28 | €10.44 |
| Zone B2 (subject to approval) | €8.93 | €9.07 |
How to succeed in your investment in the PINEL law in 2020?
Tip One: Control the purchase price of your property! You must negotiate so as not to overpay for the selling price of your new apartment or house eligible for the PINEL law. Controlling the purchase price is the secret to a successful investment. Remember that certain distribution methods multiply intermediaries and thus their compensation, which is added to the cost price of your building. Between developers, wholesalers, banks, wealth management advisors, real estate agents, notaries… Sometimes, up to 30% of the purchase price of your PINEL goes to the compensation of intermediaries. A strategy is simply to bypass these intermediaries by mastering construction. To invest in the PINEL law, you can buy an apartment off-plan… but you can also buy a small plot of land on which you can build a house through an individual house builder or renovate an old house (see “Pinel old rehabilitated: Income tax and investing in old real estate. Opportunity?”). For reference, the price of building new houses is close to €1500/m², and this is the case throughout France! The wages of masons and the price of blocks are the same throughout France. (see “What is the price of building a new house eligible under the PINEL law?”). Thus, building a 100m² house on a plot purchased for €100,000 means making a PINEL investment of €250,000 and benefiting from a tax exemption of €52,500 over 12 years! Unbeatable! Ps: Before you start, you really need to buy my book “Investing in Real Estate”, where you will find all our strategies and advice.
Tag: how to reduce taxes with the PINEL law?