A Closer Look at the Pinel Program

‍What is the purpose of the Pinel program?

The Pinel Program is a tax incentive whose primary goal is to increase the number of new rental housing units at rents that are affordable for tenants. As the successor to the Duflot Program, it remains in effect through December 31, 2024.

The Pinel program offers a tax credit—the amount of which varies depending on the duration—to investors who have invested in housing units that qualify under the program.

How is the investor's tax credit calculated?

Under this program, investors can choose from three different rental periods (6, 9, or 12 years) for their property and tax exemption. An investor who rents out their property for:

• For 6 years, you will receive a tax deduction equal to 12% of the amount invested.
• For 9 years, you will receive a tax deduction equal to 18% of the amount invested.
• Those aged 12 will receive a tax deduction equal to 21% of the amount invested.

In fact, the longer the rental period, the greater the tax savings. Keep in mind that the reduction rates mentioned above will be phased out gradually in 2023 and 2024. An investor who rents out their property for:

• For 6 years, you will receive a tax credit equal to 10.5% of the amount invested in 2023 and 9% of the amount invested in 2024.
• For 9 years, investors will receive a tax deduction equal to 15% of the amount invested, and 12% of the amount invested in 2024.
• For 12 years, investors will receive a tax deduction equal to 17.5% of the amount invested, and 14% of the amount invested in 2024.

Please note that the amount of the tax credit is limited by two criteria:

• Annual Investment Limit: The tax credit is calculated based on a maximum annual investment of €300,000.

For example, an investor who purchases a home under this program for €350,000 and rents it out for 6 years will receive a tax reduction of €36,000 (€300,000 × 12%) over the 6 years, or €6,000 per year. The excess investment of €50,000 will not be taken into account when calculating the tax reduction.

• Limit on the number of homes purchased in a year: An investor may not purchase more than two homes in a year.

When does the tax credit for the investor take effect?

There are two scenarios for purchasing a home:

• Either the investor purchases the property before construction is completed, as part of a pre-construction sale (VEFA). In this case, the investor must wait until the property is completed and then rented out before reaping the benefits.
• Either the investor purchases a new, rehabilitated, or renovated residence that is immediately available for rental. The investor must also wait until the property is rented out to qualify for the tax credit.

In both cases, the relevant date is the date the property was made available for rent.

What requirements must investors meet if they wish to purchase a home under the Pinel program?

• The rental property (for 6, 9, or 12 years) must be unfurnished.
• The purchased home may be new, under construction, an older home that has been restored, or a renovated home. If the home is purchased while under construction, the duration of the construction work must not exceed 30 months.
• The rents offered to taxpayers cannot exceed a certain threshold (cap), which is determined based on the geographic location of the dwelling. The legislature has divided the country into 5 residential zones (A bis, A, B1, B2, and C) and has set rent caps within each of these zones. The rent cap is determined based on the rent paid by the tenant relative to the living area. In 2022^(*), the rent caps were as follows:
  • Zone A bis: €17.62 per square meter
  • Zone A: €13.09 per square meter
  • Zone B1: €10.55 per square meter
  • Zone B2: €9.17 per square meter
• The price per square meter of the property purchased by the investor may not exceed €5,500. Note that the area used to calculate the price per square meter is not the Carrez living area but the weighted living area, which is defined as the interior living area plus half of the ancillary areas.

For example, an investor purchases a home for €300,000 with an interior area of 50^m² plus a 10^m² balcony. The weighted floor area will therefore be 55^m². Thus, the price per square meter of this property will be €5,455/m² (300,000 / 55). As a result, this property will be eligible for the Pinel program, since the price per square meter is less than €5,500.

Since one of the program’s objectives is to increase the construction of new housing, capping the price per square meter helps promote the construction of more housing units. In other words, by investing €300,000 based on a market price of €5,500 per square meter, one can likely build more living space than at €7,000 per square meter.

What requirements must taxpayers who wish to rent housing under the PINEL program meet?

• The property must be the taxpayer's primary residence, not a second home.
• The taxpayer must demonstrate that his or her income does not exceed a certain threshold.
• The taxpayer must not be a member of the investor’s tax household.

This program can be a valuable option to consider when looking to invest in rental real estate. However, the Pinel program is not the only one that offers tax benefits for rental investments. Learn more about programs that provide tax breaks or tax optimization.

(*) Price as of July 26, 2022, published in the Official Bulletin of Public Finance—Taxes

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