Property deficit 2026: mechanism, cap and eligible works

Quick answer. A property deficit ("déficit foncier") arises, under the actual-expense regime, when the deductible charges of an unfurnished rental exceed the rent collected. The part of the deficit not stemming from loan interest is offset against overall income up to 10,700 € a year; the excess and the interest part carry forward against property income for the next ten years. To claim the offset, the property must stay let unfurnished until 31 December of the third year that follows. The property deficit is one of the rare levers that directly cuts income tax, not just property tax.

With the end of the Pinel scheme, the property deficit remains one of the most solid tools for an owner renovating an older property for unfurnished letting. Unlike a tax reduction capped by the overall tax-break ceiling, the property deficit is not a tax break: it is simply the actual-expense regime for property income, which allows deducting the charges actually borne.

At Hayot Expertise, we find that many owners underuse this mechanism, either staying on the micro-foncier regime out of habit, or confusing the property deficit with a tax reduction. Yet it is often the most efficient option when an older property needs works. Anticipating the resale also means measuring its effect on the future property capital gain.

The property deficit requires the actual-expense regime for property income (not the micro-foncier, which applies a flat 30% allowance with no charge deduction). Under the actual regime, you deduct from rent all deductible charges: maintenance, repair and improvement works, insurance premiums, property tax, management fees and loan interest.

When these charges exceed the rent, a deficit appears. Its treatment follows a two-step rule:

1. The part of the deficit other than loan interest is offset against overall income (salaries, pensions, etc.), up to 10,700 € a year.
2. The part of the deficit from loan interest is offset only against property income, never against overall income.

Any excess — the fraction above 10,700 € or stemming from interest — carries forward against property income for the next ten years. It is this offset against overall income that gives the scheme its value: it cuts income tax at the household's marginal rate.

In this example, 10,700 € reduce the year's taxable overall income, and 8,300 € remain carried forward against property income for the next ten years. The tax saving depends on the marginal bracket: for a household taxed at 30%, offsetting 10,700 € represents about 3,210 € less tax, plus the effect on the carried-forward property income. To make these calculations and the 2044 return reliable, rely on rigorous accounting of your rental income.

Not all works are deductible. The distinction is essential:

• Deductible: maintenance, repair and improvement works on an existing dwelling (roof repairs, façade work, bringing up to standard, replacing components, insulation).
• Not deductible: construction, reconstruction or enlargement works that increase the volume or floor area, or change the property's use.

The works must concern an unfurnished let dwelling generating property income; those carried out before letting follow particular rules.

The energy doubling: mind the period#

The offset cap against overall income was temporarily raised to 21,400 € for energy-renovation works moving a dwelling from class E, F or G to class A, B, C or D. This increase concerned expenses paid between 1 January 2023 and 31 December 2025, on a quote accepted from 5 November 2022. For expenses incurred in 2026, the standard 10,700 € cap therefore applies, unless the scheme is extended: check the rules in force before timing your works.

• SCI taxed at income tax. The property deficit flows up to the partners pro rata to their shares and offsets against their overall income, within the same limits. It is an advantage of income-tax structures; see our pointers on SCI and taxation.
• Micro-foncier. Below 15,000 € of rent, the micro-foncier regime applies by default with a 30% allowance but bars deducting actual charges: you must opt for the actual regime to create a deficit.
• Letting commitment. The offset against overall income is reversed if the property is not let unfurnished until 31 December of the third year after the offset.
• Historic monuments. They follow a specific, even more favourable regime, with no offset cap in some cases.

• Staying on micro-foncier by default. Without opting for the actual regime, no deficit is possible, even with major works.
• Confusing improvement with reconstruction. An enlargement is not deductible: classifying the works is decisive.
• Forgetting the interest part. Loan interest is never offset against overall income, only against property income.
• Overestimating the energy doubling. The 21,400 € cap concerned expenses paid up to 31 December 2025.
• Neglecting the letting commitment. Selling or stopping the let too early loses the benefit.

Recently, an owner who had bought an older flat to renovate was hesitating between the simpler micro-foncier and the actual regime. His improvement works exceeded 25,000 €. We set out both scenarios: under micro-foncier, the 30% allowance ignored those works entirely; under the actual regime, the property deficit offset 10,700 € against his overall income in the first year, with a substantial carry-forward afterwards. Opting for the actual regime was clear-cut.

Our conviction, as chartered accountants, is that the property deficit remains the safest tool of older-property investment, precisely because it depends on no temporary scheme. It rewards real renovation rather than a structure. But it requires mastering the classification of works, the order of offset and the letting commitment: that is where the tax saving is won or lost.

Hayot Expertise tip. Before buying a property to renovate, simulate the property deficit over several years and compare it with micro-foncier. From the quote stage, separate deductible works from construction spending. And plan the works to spread the offset: a deficit too concentrated in a single year may exceed the cap and simply be carried forward.