Work to transform a mansion into eleven apartments is deductible from property income

The Council of State has just ruled that work to transform a mansion into eleven apartments is deductible from property income.

Land income comes from the rental of bare buildings. They are subject to income tax after deduction of certain expenses. Among these, maintenance, repair and improvement expenses relating to residential premises. On the other hand, construction, reconstruction or expansion expenses are not deductible. These are understood to mean those having the effect of making a significant modification to the shell of existing premises, internal fitting-out work which, by their importance, is equivalent to a reconstruction or even those having the effect of increase the volume or living space of existing premises.

In the case submitted to the Council of State, a real estate company, whose activity is the rental of real estate, acquired a real estate complex consisting of a mansion and an outbuilding. During the years 2010 and 2011, she carried out work to realize eleven apartments in the main house and a twelfth in the outbuilding.

Following an accounting audit, the tax administration questioned the deductible nature of these works expenses which they regarded as reconstruction and expansion expenses. As a result, the partners were subject to additional income tax and social security contributions, as well as penalties.

They appealed to the Administrative Court, then the Administrative Court of Appeal of Pau, which both rejected their requests. They then appealed to the Conseil d’Etat. In a judgment n ° 431595 of February 11, 2021, the latter ruled that the transformation work could not be qualified as reconstruction work.

According to the High Court, the work that led to the creation of eleven apartments in the main house, which was only partially used for housing, and which required internal redevelopment work, the installation of kitchens and sanitary facilities and repair of water, electricity and wastewater evacuation networks, did not significantly affect the structural work, and are not of sufficient magnitude to qualify as reconstruction work.

These works are therefore deductible from property income.

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