In a case that was recently heard in the French Supreme Court, the Cour de Cassation, a couple purchased a property for €200,000, following which they proceeded to convert it into two flats for rent.

The couple later claimed the works as deductible expenses against their rental income. The cost of the works amounted to €61,489.

The tax authority refused their claim, arguing that the nature of the works were such that they were not deductible against their revenus foncières (unfurnished rental income).

Article 31 of the French tax code distinguishes three main types of building work carried out on rental properties:

• Repair and maintenance ;
• Improvements ;
• Construction, reconstruction and extensions.

Only the first two of these works are tax deductible (for those who use the régime réel.) However, in a major building project it can be difficult to distinguish between them, as we have previously reported.

The court heard that the house had an initial habitable area of 90 m². After being divided into two apartments the total surface area of the property was 108 m², an increase of 20% compared to the initial habitable surface.

The tax authority claimed that the couple had converted the basement and the attic of the property into habitable areas.

This was disputed by the couple, who argued that both were already habitable.

As evidence they produced a photo of the basement before the works, which showed a dark room in a raw state, with a window and a radiator.

They also produced evidence showing that prior to the works the attic contained windows.

However, for the court the evidence was unconvincing, with no clear demonstration that the areas were habitable.

The deeds of the property also showed that areas were designated as a ‘cellar’ and an ‘attic’.

The court also noted that the building works included the installation of a staircase and a walkway to the attic area.

The court ruled that the works increased the size of the property and that, as a result, they were not a deductible expense.