How to Pay Your Property Taxes (and other French Taxes) — Part II — a Correction!

I stand to be corrected. If you read last week’s FPI “How to Pay Your Property Taxes (and other French Taxes),” then please note an important correction — thanks to one of our loyal readers who is a retired U.S. tax attorney and owns an apartment in Paris where he lives part-time.

In the nouvellettre® I posed the question: “Are the taxes that are paid in France deductible on your US return?” The answer was “Yes!!,” but the answer and the link to an IRS explanation referred to a “credit” for foreign income taxes, which according to our reader, has nothing to do with deductions for foreign property taxes.

According to our reader, the new tax law Congress passed and Donald Trump signed a few weeks ago, and that went into effect this year, allows tax deductions only for state, local and foreign property taxes incurred in a business or an income-producing activity. This means that if your property in France generates a rental income and that income is reported on your U.S. tax return, then the deductions may still be possible. For secondary homes that are not rented out, or considered investment properties, the deduction for taxes is capped at $10,000 per year, and that’s only for U.S. state and local income or property taxes. The Congressional conference committee report specifically says: “Foreign real property taxes may not be deducted under this exception.” This text can be found on pages 80 and 81.

You may read the actual document on the government’s website.

So, the answer to the question would have been “yes” for last year but not for 2018 and going forward through 2025. This is considered a “temporary” provision that could be extended or repealed or…

The IRS explains the rules for deducting expenses for property that is rented all or part of the time. See irs.gov/taxtopics/tc415 for detailed information.

Our reader explained: “It includes things like dividing expenses between “rental” and “personal” use. It’s probably more “on point” for what this column says is your target audience (“non-resident clients who have a property in France”) than the one you had included on credits for foreign income taxes. It doesn’t specifically refer to the “foreign” (non-USA) property tax issue – i.e., that the “personal” portion of foreign property taxes cannot be deducted – but it has been updated recently (mid-January) so seems generally okay under current law.”

Reality check: The French tax authorities will tell you that if you rent a property in France, France expects you to report your rental income in France. The rules in France on income and the taxes due, of course, differ. If you are not tax resident in France, then the question I ask is, “how will France know?” The truth is they won’t unless you report it. The IRS isn’t going to tell you that you should be paying your tax in France instead of the U.S.! If you are renting your property short-term in Paris contrary to the current rules, then if you report your rental income in France, you will not be able to deny your short-term rentals. I am certainly not suggesting tax evasion, but make these notes only to have a perspective. You then have to make your own decisions on how you wish to report your income and expenses against that income.

Disclaimer: I am not a tax attorney nor expert in these issues and cannot provide definitive tax advice. This is only designed to inform you and help you assess your own personal situations. I recommend you consult with your U.S. and French tax attorneys to be absolutely certain and do what makes you feel most comfortable!

A bientôt,

Adrian Leeds
Adrian Leeds Group

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