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Sale of buildings to renovate – Deductibility of work?

Are you the purchaser of real estate as part of a sale of a building to renovate?

Please note, the renovation work carried out by the seller is not deductible from your property income even if you have some bear the price!

This is in fact the solution adopted by the Council of State on October 17 (CE, 9th and 10th ch., October 17, 2022, no. 460113)

Let us first of all recall that the system for the sale of buildings to be renovated (VIR), defined by articles L. 262-1 et seq. of the Construction and Housing Code, consists of a contract by which the transferor undertakes to carry out work on the transferred property and receives the price before delivery of the work. The objective being for the seller, to facilitate the transfer of a degraded property by allowing him, rather than undertaking restoration work upstream of a traditional sale and having to advance the cost, to ensure their financing as they are carried out. The work, although planned at the time of the sale, is therefore carried out after the transfer of ownership.

The Nantes Court of Appeal ruled that the deduction of renovation expenses made by the seller could not be excluded in principle (CAA Nantes, 1st ch., June 29, 2017, no. 16NT00954). The Bordeaux Court of Appeal adopted the opposite solution, considering that these expenses were analyzed as an element of the acquisition price of the building (CAA Bordeaux, 7th ch., Nov. 4, 2021, no. 19BX03720) .

For the first time, the Council of State ruling in cassation of the Bordeaux judgment holds that the price of the work to be carried out by the seller is an element of the acquisition price of the building and not a charge of the property that can be deducted from the land income from the rental of the acquired property.

Consequently, if you had rented a property acquired in VIR, and you had decided to deduct from your property income the price of the work carried out by the seller, you could be subject to a tax adjustment.

If this concerns you, I invite you to seek advice from your lawyer to regularize the situation as quickly as possible.

This means in practice that the work increases the purchase price and must be taken into consideration to reduce the amount of the capital gain when the property is sold.

If you did not take this element into account when calculating the capital gain, you should file a contentious claim to recalculate the declared capital gain.

You will be able to do this for all real estate sold and for which tax has been paid no later than 2021, for a claim filed before December 31, 2023.

This article was co-written with Ms. Hortense RUSTE, tax lawyer.

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