Understanding French Capital Gains Tax: What You Need to Know - FrenchEntrée (2024)

FAQs

What are the capital gains tax rules in France? ›

When selling a primary residence property, capital gains from the sale can be deducted from the seller's owed taxes if the seller has lived in the property themselves for at least 2 of the previous 5 years leading up to the sale. That is the 2-out-of-5-years rule, in short.

Capital gains taxes are owed on the profits from the sale of most investments if they are held for at least one year. The taxes are reported on a Schedule D form. The capital gains tax rate is 0%, 15%, or 20%, depending on your taxable income for the year. High earners pay more.

For example, suppose the real estate property you are selling in France is your main place of residence. In that case, you do not have to pay capital gains or social charges against its sale. Also, if the property sale is under €15,000, then again, no capital gains tax is payable.

Capital gains tax – impôt sur les plus values – is a tax payable in France on gains arising from the sale of land or properties. Capital gains are calculated as the difference between the sale price and the purchase price or the value that was reported when the property was received as a gift or by inheritance.

Capital gains taxes in France

As always in France, you have two sets of tax to pay: capital gains tax and social charges. The standard capital gains tax rate on the sale of real estate is 19%. Progressive surcharges are added for gains over €50,000, starting at 2% and rising to 6% for gains over €260,000.

Short-Term Capital Gains Tax Rates

Short-term capital gains are taxed as ordinary income. Any income that you receive from investments that you held for one year or less must be included in your taxable income for that year.

The stepped-up basis loophole lets wealthy people avoid ever paying tax on their gains. Under the provision known as stepped-up basis, if an individual holds an asset for his entire life, when he passes it on to an heir, the gain is completely wiped out and capital gains taxes will never need to be paid on it.

The seller must have owned the home and used it as their principal residence for two out of the last five years (up to the date of closing). The two years do not have to be consecutive to qualify. The seller must not have sold a home in the last two years and claimed the capital gains tax exclusion.

The IRS allows no specific tax exemptions for senior citizens, either when it comes to income or capital gains. The closest you can come is a back-end tax-advantaged retirement account like a Roth IRA which allows you to withdraw money without paying taxes.

What is capital gains tax on $100000? ›

In this example, you see a capital gain of $100,000 on your home sale. If your income and asset class put you in the 20% capital gains tax bracket, you pay 20% of your profit. That's 20% of $100,000, or $20,000. You don't need to pay 20% of the entire $350,000 sale because you had to spend $250,000 to buy the asset.

Capital gains tax in France

The basic capital gains tax rate in France is 36.2%, but for those who are not affiliated with France's social security system, that rate goes down to 26.5%.

The standard tax rates on the gains from selling a French property are: Capital Gains Tax: 19% Social Charges: 17.2% Total Tax: 36.2%

You have proof of residence in your name

You can justify your domicile with one of these documents: Gas, electricity, water or telephone bill (fixed or mobile) less than 6 months. Notice of previous year's tax or non-tax (income tax, housing tax or property tax) Rent receipt less than 6 months.

Inheritance Tax in France

If you have one child – 50% If you have two children – 66% If you have three or more children – 75%

There are two local annual taxes, the 'taxe d'habitation' and the 'taxe foncière which are both are levied in October / November. These taxes are based on the cadastral value of the property. The rates of tax are set by the région, the département and the commune and vary from one district to another.

One critical difference between the estates of the realm was the burden of taxation. The nobles and the clergy were largely excluded from taxation while the commoners paid disproportionately high direct taxes.

Notaires work for a fixed fee; they don't charge by the hour. However, the fixed fee is based on the property's sale price and location. The notaire's fee is approximately 7% of the property price, this changes fractionally depending on area, price range, whether you have a mortgage and several other factors.

The capital gains tax property six-year rule allows you to use your property investment, as if it was your principal place of residence, for a period of up to six years, whilst you rent it out.

What is the 30 day rule for capital gains? ›

The wash-sale rule states that, if an investment is sold at a loss and then repurchased within 30 days, the initial loss cannot be claimed for tax purposes. So, just wait for 30 days after the sale date before repurchasing the same or similar investment.

Owning your home for more than a year means you pay the long-term capital gains tax. After 2 years, you'll qualify for the personal exemption – more on that below.

An individual's only or main residence is usually exempt from capital gains tax, although the situation is more complicated when the individual owns more than one property.

There are a few ways to lower the capital gains tax bill you pay on profits from the sale of stock. You can claim your fees as a tax deduction, use tax-loss harvesting, or invest in tax-advantaged retirement accounts.

The Internal Revenue Service requires owners of real estate to report their capital gains. In some cases when you sell real estate for a capital gain, you'll receive IRS Form 1099-S. This form itself is sent to property sellers by real estate settlement agents, brokers or lenders involved in real estate transactions.

The 2-out-of-five-year rule states that you must have both owned and lived in your home for a minimum of two out of the last five years before the date of sale. However, these two years don't have to be consecutive, and you don't have to live there on the date of the sale.

You're eligible for the exclusion if you have owned and used your home as your main home for a period aggregating at least two years out of the five years prior to its date of sale.

You can exclude capital gains from the sale of a primary residence once every two years. If you want to claim the capital gains exclusion more than once, you'll have to meet the usage and ownership requirements at a different residence.

You don't have to pay capital gains tax until you sell your investment. The tax paid covers the amount of profit — the capital gain — you made between the purchase price and sale price of the stock, real estate or other asset.

If you are retired and already drawing your pension income from your super accounts, CGT is not applicable. All investment earnings in pension phase are tax exempt to a limit of $1.6million.

Do retirees have to pay capital gains tax? ›

The IRS considers retirement accounts assets, but the most common types of retirement accounts don't incur capital gains taxes. Withdrawals from IRA and 401(k) accounts get taxed at your ordinary income tax level, not as capital gains.

If the capital gain is $50,000, this amount may push the taxpayer into the 22 percent marginal tax bracket. In this instance, the taxpayer would pay 0 percent of capital gains tax on the amount of capital gain that fits into the 12 percent marginal tax bracket.

If you work for an employer, you and your employer each pay a 6.2% Social Security tax on up to $160,200 of your earnings. Each must also pay a 1.45% Medicare tax on all earnings. If you're self-employed, you pay the combined employee and employer amount.

Long-term capital gains tax rates for the 2023 tax year

In 2023, individual filers won't pay any capital gains tax if their total taxable income is $44,625 or less. The rate jumps to 15 percent on capital gains, if their income is $44,626 to $492,300. Above that income level the rate climbs to 20 percent.

Long-term capital gains cannot push you into a higher income tax bracket. Only short-term capital gains can accomplish that, because those gains are taxed as ordinary income. So any short-term capital gains are added to your income for the year.

In laymen's terms, the U.S. and France agreed that social security income will be taxed based on its source, not where the resident lives: If you're a U.S. citizen with a U.S. retirement account (no matter where you live) that money is only taxable in the U.S.

Does the US Have a Tax Treaty with France? Yes, the US has a formal tax treaty with France. This treaty helps US expats living in France avoid double taxation. Under the treaty, US expats living in France may be able to benefit from reduced tax rates or exemptions for certain types of income.

Which estate in France was exempted from paying taxes? ›

The first and second estate were exempted from paying taxes, while the third estate paid disproportionately large taxes. The Taille (a direct land tax on the French peasantry and non-nobles) was a major source of royal income as French administration wanted a more efficient system of collecting taxes.

Habitation housing taxes 2022 on the second home

However, if you live abroad and have a second home in France, you must pay this tax. Owners of second homes are not exempt from housing tax. They then have to pay local tax for each of their homes: the main home if they are still liable in 2022 AND the second home.

Before marketing your French property, you are required to have a Diagnostique de Performance Energétique (DPE) undertaken by an approved specialist. Whether you are selling through an estate agent or privately, the test results must be displayed within the listing.

People in France who are not tax residents are only taxed on income from French sources. Residents of France are taxed on the entirety of their income earned from French sources or from foreign sources.

If you spend more than 6 months a year in France, you are then considered as a French resident and must apply for a Long Stay visitor visa (visa de long séjour valant titre de séjour VLS-TS « visiteur »).

A utility bill, credit card statement, lease agreement or mortgage statement will all work to prove residency. If you've gone paperless, print a billing statement from your online account.

Property capital gains tax is due, where applicable, on all second homes – but not main homes – in France. It makes no difference whether the owner lives in France (in another property) or abroad, and the relief for length of ownership is the same in both scenarios.

The capital gain generated after the sale of a second home is taxed on income tax at a rate of 19% after deduction, depending on the length of time the property is held. If the age exceeds 22, the owner will be exempt. The capital gain is also subject to social security contributions, up to 15.5%.

Tax on pensions in France

In France, pensions are subject to income tax after the deduction of a 10% allowance per household (capped at €3858 based on 2021 figures). After you pass your tax-free allowance (€10,084 based on 2021 figures), income tax rises to 11%, rising to 45% for high-income earners.

In order to avoid double taxation, tax deducted at source in France gives rise to an equivalent tax credit in the country of residence (depending on the tax treaty between France and the country of residence). Helpful tip: Most international taxation treaties make provision for temporary postings.

What are the notaires fees for selling houses in France? ›

Notaires work for a fixed fee; they don't charge by the hour. However, the fixed fee is based on the property's sale price and location. The notaire's fee is approximately 7% of the property price, this changes fractionally depending on area, price range, whether you have a mortgage and several other factors.

Visa requirements

If you intend to spend longer than 90 days, then you will now need a Long Stay visa. There are many different types but as a holiday homeowner you will probably apply for a Visa de Long Sejour Temporaire Visiteur. Details are available from the French Government (in English) here .

There are two parts to this tax: tax on the building based on 50% of the notional rental value, and tax on the land, which is determined as 20% of the rental value, multiplied by the tax rate fixed in the locality. In the case of both these taxes, exceptions and deductions can apply.

Currently, Britons and many other non-EU nationals with second homes in France must obtain a visa to stay longer than 90 days in any 180-day period, with the only option being a 'temporary long-stay visa' (VLS-T) valid for up to one designated six-month period at a time.

How do I avoid capital gains tax on a second home? There are various ways to avoid capital gains taxes on a second home, including renting it out, performing a 1031 exchange, using it as your primary residence, and depreciating your property.

Do a 1031 exchange and defer capital gains tax. Named for the IRS Code Section 1031, a “1031 exchange” — also called a “like-kind exchange” — allows you to swap out an investment home for another property of the same type without paying any capital gains tax.