LMNP 2026: Depreciation Recapture Upends Your Capital Gains Tax
What the 2025 French Finance Act and the March 2026 Mette ministerial reply mean concretely for your furnished rental investments
- Since February 15, 2025, depreciation deductions claimed under the actual-cost LMNP regime reduce the acquisition cost used to calculate the taxable capital gain at the time of sale
- The Mette ministerial reply (March 2026) confirms that depreciation taken before 2025 is also recaptured for any disposal occurring after February 15, 2025
- Only managed residences (student residences, senior residences, EHPAD, and disability-adapted housing) benefit from an explicit exemption
- Holding-period allowances remain applicable — the full income tax exemption at 22 years remains the strongest long-term tax shield
- An immediate review of your disposal projections is necessary if you hold properties under the actual-cost LMNP regime
The actual-cost LMNP regime before the reform: a highly advantageous tax structure
For nearly three decades, the non-professional furnished rental (LMNP) status under the actual-cost regime stood as one of the few tools allowing a private investor to depreciate a property for tax purposes. By deducting each year a portion of the acquisition cost of the building and furniture from furnished rental income, the actual-cost LMNP enabled investors to receive rental income that was virtually tax-free for ten to twenty years.
The complementary advantage lay in the treatment of the capital gain at disposal: until February 14, 2025, the gain was calculated under the rules applicable to private individuals — that is, without taking into account previously claimed depreciation. An investor could thus have reduced rental taxation for fifteen years through depreciation, then sell the property paying a capital gain calculated only on the difference between the sale price and the original acquisition price, with no depreciation recapture whatsoever. This dual benefit, described by some as a “tax loophole,” was ultimately abolished by the 2025 Finance Act.
The 2025 Finance Act reform: depreciation recaptured in the capital gain calculation
Article 84 of the Finance Act for 2025, promulgated on February 14, 2025, modifies the rules for calculating the real estate capital gain realised within the framework of an LMNP activity. Henceforth, for disposals occurring after February 15, 2025, the acquisition cost used to calculate the capital gain is reduced by the total depreciation deducted since the start of the furnished rental activity.
In practice, the mechanism works as follows: if you acquired an apartment for €200,000 and claimed €60,000 of depreciation over fifteen years, your tax acquisition cost is reduced to €140,000. If you sell this property for €280,000, your taxable capital gain is no longer €80,000 (€280,000 minus €200,000) but €140,000 (€280,000 minus €140,000). The impact on the effective tax burden can therefore be considerable, particularly for long-term holders who have accumulated significant depreciation.
“The LMNP reform does not eliminate the upfront advantage — depreciation remains deductible against rental income — but it ends the double benefit: one can no longer depreciate an asset for tax purposes while ignoring that depreciation at the time of disposal.”Riviera Wealth Management Analysis, May 2026
The March 2026 Mette ministerial reply: pre-2025 depreciation also recaptured
A major uncertainty had persisted since the Act was promulgated: did the recapture apply only to depreciation claimed from February 15, 2025 onward, or also to that deducted in prior years? The Mette ministerial reply, published in the Official Journal of the National Assembly on March 24, 2026 (no. 10097), resolved the ambiguity in a manner unfavourable to taxpayers.
According to the tax authorities, all depreciation claimed since the start of the furnished rental activity is recaptured, regardless of when it was deducted, provided the disposal occurs after February 15, 2025. The administration does not characterise this measure as retroactive in the strict sense, taking the view that it modifies the tax base rules applicable from a future event (the disposal) rather than rights vested in prior years. A legal challenge remains theoretically possible, but few practitioners are optimistic about its prospects given existing case law.
This confirmation considerably amplifies the impact of the reform for investors who have held properties under the LMNP regime for ten years or more, and who had counted on not recapturing accumulated depreciation at the point of sale.
Assumptions: property acquired for €200,000, average annual depreciation €7,000, “economic” gain (sale price minus acquisition price) constant at €80,000. Holding-period allowances not applied in order to isolate the pure effect of recapture.
Exceptions and special cases to be aware of
The reform does not apply uniformly across all LMNP properties. Several exceptions warrant close attention.
| Property type | Depreciation recapture | Comment |
|---|---|---|
| Standard furnished apartment (long-term rental) | YES — full recapture | All depreciation claimed since entry into the actual-cost LMNP regime |
| Managed student residence | NO — exempt | Explicit exemption under Art. 84 of the 2025 Finance Act — status confirmed |
| Senior residence / EHPAD | NO — exempt | Explicit exemption — same rule as student residences |
| Disability-adapted managed residence | NO — exempt | Idem — explicit exemption confirmed |
| Seasonal rental / Airbnb (micro-BIC regime) | Not applicable | The micro-BIC regime does not allow depreciation — no recapture possible |
| Actual-cost LMNP — disposal before 15/02/2025 | Former rules apply | The reform does not apply to disposals prior to the Act’s promulgation |
Three wealth management adaptation strategies
The reform does not spell the end of the LMNP, but it does require a recalibration of exit and holding strategies. Depending on your situation, several approaches can significantly mitigate the impact of recapture.
Extend the holding period
Holding-period allowances remain unchanged and apply to the new tax base. Full income tax exemption is reached after 22 years, and full social charges exemption after 30 years. For a property held for 12 years, waiting a further 10 years can entirely eliminate the tax liability.
Switch to the micro-BIC regime
For properties whose annual rents fall below the micro-BIC thresholds (€15,000 for long-term furnished rentals), switching from the actual-cost regime to the micro-BIC stops the accumulation of further depreciation. Recapture will then be limited to depreciation already claimed. This switch must be planned in advance and validated with a chartered accountant.
Invest in managed residences
Student residences, senior residences and EHPADs benefit from the explicit exemption: depreciation remains deductible against rental income with no recapture at disposal. For new LMNP investments, this segment now offers a structurally more favourable tax treatment than standard furnished apartments.
Beyond these three approaches, certain situations may justify a deeper wealth restructuring. Converting an LMNP property to an unfurnished rental — switching to property income and exiting the BIC regime — can crystallise a capital gain at a chosen moment, particularly where holding-period allowances are already substantial. Similarly, contributing the property to a company subject to corporate income tax (IS) may offer an alternative, subject to a prior assessment of the specific tax consequences involved. These complex transactions require the joint involvement of a wealth management adviser and a chartered accountant.
It should also be noted that holding-period allowances do not reduce the base for the high capital gains surtax (a progressive surcharge of 2% to 6% applicable above €50,000 of net capital gain). Following depreciation recapture, an increasing number of LMNP disposals will exceed this threshold, making tax planning all the more essential.
- Since February 15, 2025, depreciation claimed under the actual-cost LMNP regime (including that taken before 2025) increases the taxable capital gain at disposal
- The impact can multiply the tax gain by 1.5 to 3 times compared to the former regime, depending on the holding period and the level of accumulated depreciation
- Managed residences (student, senior, EHPAD, disability housing) remain exempt and now offer a structurally more favourable exit tax treatment
- The long-term holding strategy remains effective: holding-period allowances apply to the new tax base and eliminate income tax entirely after 22 years
- An urgent review of your disposal projections is warranted if you have held properties under the actual-cost LMNP regime for more than 5 years: the impact on your exit strategy may be significant
This document is provided for informational purposes only and does not constitute investment advice, a personalised recommendation, or an offer to buy or sell financial products. Past performance is not indicative of future results. All investments involve risk, including the risk of capital loss. The information contained in this article reflects Riviera Wealth Management’s analysis as of the publication date and is subject to change. Riviera Wealth Management is a registered investment adviser (CIF), registered with ORIAS and a member of CNCGP.
