Property Capital Gains 2026: Calculation, Allowances and Challenging a Reassessment

An owner who sells a second home held for twelve years, or the partners of a family SCI (French property holding company) who sell a rental building, often discover the amount of the tax at the moment of signing at the notary's office. The mechanism is reputed to be simple on paper, but each item of the calculation, in particular the works and costs added to the purchase price, may be challenged by the tax authorities several months after the sale. This guide sets out the calculation of property capital gains applicable in 2026, the scale of allowances for length of ownership, the particular features of SCIs, and above all how to challenge a reassessment where the tax authorities refuse expenses that the seller had legitimately deducted.

When the sale of a property is taxable

A property capital gain is the gain made on the sale for consideration of real estate or of rights relating to it. The regime is set out in Articles 150 U to 150 VH of the French General Tax Code (CGI). The starting rule to bear in mind is that any sale generating a gain is in principle taxable, unless expressly exempt. The position of someone who buys to resell on a habitual basis, and the resulting risk of requalification, are examined in our article on the status of marchand de biens (property dealer).

The broadest exemption concerns the seller's main residence on the day of the sale, provided for in point 1° of II of Article 150 U of the CGI. It is total and subject to no condition as to length of ownership. It is precisely because the main residence escapes tax that difficulties concentrate on other properties: second home, rental property, building land, commercial premises, SCI shares.

Other, more targeted exemptions exist: the first sale of a property other than the main residence, subject to reinvesting the price in the acquisition of a main residence, a sale where the price does not exceed €15,000, or ownership beyond the period giving rise to the total allowance. Outside these cases, the seller of a second home or the partner of a tax-transparent SCI bears property capital gains tax under the mechanism described below.

Calculating the gross capital gain

The calculation of a property capital gain rests on a subtraction: the sale price less the acquisition price. But each of these two terms is adjusted, and it is in these adjustments that both tax savings and grounds for reassessment are found.

The sale price

The sale price is the one stipulated in the deed, as defined in Article 150 VA of the CGI. It may be increased by the charges and indemnities that the purchaser pays to the seller (for example a reimbursed eviction indemnity). Conversely, it may be reduced, on supporting documents, by certain costs borne by the seller: the cost of mandatory diagnostics, release of a mortgage (mainlevée d'hypothèque), agency commission where it is borne by the seller. These reductions lower the sale price taken into account, and therefore the capital gain.

The acquisition price and its increases

The acquisition price is the price actually paid on purchase, or the value used to calculate transfer duties (droits de mutation) in the case of inheritance or gift (Article 150 VB of the CGI). This price is increased by several items, and it is these that make all the difference.

Acquisition costs (registration duties, notary's fees, sundry costs) are added to the purchase price. The seller has a choice: either to use their actual amount on supporting documents, or to apply a flat rate of 7.5% of the acquisition price. For a property bought second-hand, the flat rate is often close to reality; for a property bought new, actual costs may be lower. The composition of these costs and their allocation between the parties to the sale are set out in our article on notary costs borne by the buyer or the seller.

Expenditure on works is the most sensitive item. The seller may add it to the acquisition price by two mutually exclusive methods:

• at actual cost, on presentation of contractors' invoices, for works of construction, reconstruction, extension or improvement;
• at the flat rate of 15% of the acquisition price, without supporting documents, on the sole condition that the property has been held for more than five years.

The 15% flat rate cannot be combined with actual works costs. An owner who has few or no invoices therefore has an interest in the flat rate once they have held the property for more than five years, whereas one who has carried out a documented major renovation will use actual costs.

The allowance for length of ownership

Once the gross capital gain has been determined, the allowance for length of ownership on property capital gains reduces the taxable base. The mechanism rewards long ownership up to total exemption. An essential and often misunderstood point: there are two distinct scales, one for income tax, the other for social charges, with different rates and periods (Article 150 VC of the CGI).

Two scales that do not coincide

For the portion subject to income tax at the rate of 19%, the allowance is 6% for each year of ownership beyond the fifth and up to the twenty-first, then 4% for the twenty-second year. Exemption from income tax is therefore achieved at the end of the twenty-second year of ownership.

For the portion subject to social charges at the rate of 17.2%, the pace is much slower: 1.65% per year from the sixth to the twenty-first year, 1.60% for the twenty-second year, then 9% per year from the twenty-third to the thirtieth year. Exemption from social charges is therefore total only at the end of the thirtieth year.

The practical consequence is counter-intuitive. A seller who has held the property for twenty-five years no longer has income tax to pay, but remains liable for social charges on a not insignificant fraction of the capital gain. Believing that "after twenty-two years, there is nothing more to pay" is a frequent error that distorts any forward planning.

A worked example for a second home

Take a deliberately simplified illustration. A couple sells a second home held for eighteen years. The gross capital gain, after increasing the acquisition price by costs and the flat rate for works, comes to €100,000 (an amount used by way of example).

For income tax, eighteen years of ownership gives rise to an allowance covering the thirteen years beyond the fifth, that is 13 × 6% = 78%. The base taxable to income tax comes to €22,000, taxed at 19%.

For social charges, the allowance is 13 × 1.65% = 21.45%. The base comes to €78,550, taxed at 17.2%.

It is immediately apparent that the same capital gain bears two very different bases depending on the levy considered. Planning a sale therefore requires simulating the two components separately.

The particular case of the SCI

The question of property capital gains of an SCI and length of ownership comes up constantly, because the answer depends entirely on the company's tax regime. Confusion between an SCI subject to income tax and an SCI subject to corporation tax leads to calculation errors with heavy consequences.

The SCI subject to income tax

A so-called tax-transparent SCI, subject to income tax, does not itself pay the tax: the profit is taxed in the hands of the partners in proportion to their rights. When this SCI sells a building, the capital gain falls within the individuals' regime of Articles 150 U et seq. of the CGI. The partners therefore benefit from the allowance for length of ownership under the two scales described above, the period being counted from the date the SCI acquired the property.

The notary calculates and pays the tax on behalf of the company on the sale. The increases for acquisition costs and works apply on the same terms as for an individual, with the same requirement for contractors' invoices for works at actual cost.

The SCI subject to corporation tax

The regime changes completely where the SCI has elected for corporation tax, or is subject to it by operation of law. The capital gain becomes a business capital gain, calculated as the difference between the sale price and the net book value, that is the purchase price less the depreciation taken. There is then no allowance for length of ownership. In other words, an SCI subject to corporation tax that has held a building for thirty years benefits from no exemption linked to duration, and the depreciation taken each year mechanically inflates the taxable capital gain on resale.

This choice of regime, often made at incorporation to optimise the taxation of rents, is therefore paid for at the time of exit. Many partners discover late that the tax saving made during the holding period is neutralised, or even exceeded, by the taxation of the sale. The tax regime of a company letting furnished property and its consequences for the estate are analysed in our article on furnished letting through an SCI.

Sale of shares rather than of the building

Selling the shares of an SCI subject to income tax, rather than the building itself, also falls within the property capital gains regime where the company's assets are mainly real estate, with the allowance for length of ownership counted from the acquisition of the shares. The structure must be analysed case by case, because the period for which the shares have been held and that for which the building has been held do not always coincide.

The rate of tax and the surtax

The net taxable capital gain, after allowances, bears two distinct levies that are cumulative: income tax at the flat rate of 19% and social charges at the rate of 17.2%, a global rate of 36.2% before any surtax.

To this is added a tax on high capital gains, provided for by Article 1609 nonies G of the CGI, applicable where the capital gain taxable to income tax exceeds €50,000. Its progressive rate ranges from 2% to 6% depending on the amount. It does not apply to sales of building land. For a second home generating a large capital gain, this surtax can significantly increase the bill and must feature in any prior simulation.

Challenging a reassessment: works and costs refused

This is where the most common disputes arise. The capital gains return (form 2048-IMM) is prepared and filed by the notary at the time of the sale, and the tax is paid immediately. But the tax authorities retain a right of audit after the event. They may challenge, within their period of assessment (délai de reprise), the increases the seller has used, in particular works and actual costs.

Why the authorities reject expenses

The most frequent ground for rejection concerns works deducted at actual cost. The authorities refuse to accept as an increase to the acquisition price:

• maintenance and repair works, which are not equivalent to works of construction, reconstruction, extension or improvement;
• works carried out by the owner personally, as well as the cost of materials they bought to carry them out, for lack of a contractor's invoice;
• expenditure already taken into account in determining income tax, in particular that deducted from property income, the rule prohibiting double counting;
• invoices that do not make it possible to identify precisely the nature of the works, their address or the payer.

The boundary between improvement works (accepted) and maintenance works (refused) is the classic battleground. The like-for-like replacement of an existing element is maintenance, whereas the addition of new equipment or comfort is improvement. A well-documented file of invoices, distinguishing item by item the nature of the work, is the best protection.

The adjustment procedure

Where the authorities intend to make a reassessment, they send a reasoned notice of proposed adjustment (proposition de rectification), in accordance with Article L. 57 of the French Book of Tax Procedures (LPF). This document must set out the legal and factual grounds for the reassessment, quantify the increases and state the avenues of appeal. Insufficient reasoning is in itself a ground of challenge.

The authorities send the taxpayer a notice of proposed adjustment which must be reasoned in such a way as to enable the taxpayer to submit observations or to state acceptance (Article L. 57 of the LPF).

The taxpayer has thirty days to reply, which may be extended by a further thirty days on simple request. This reply, known as the taxpayer's observations, is a decisive step: it is the moment to produce the missing invoices, to demonstrate the real nature of the works and to challenge the authorities' reasoning. Silence amounts to tacit acceptance of the reassessment, which seriously weakens any later challenge.

After examining the observations, the authorities notify their position in a reply to the taxpayer's observations. If disagreement persists, several avenues of amicable appeal open up: referral to the auditor's hierarchical superior, then to the departmental contact (interlocuteur départemental). These appeals, free of charge and non-contentious, often make it possible to resolve a file on the sole question of the classification of the works.

The grounds and timetable of the challenge

If the amicable phase fails and the tax is put up for collection, the taxpayer may bring a contentious claim (réclamation contentieuse). The time limit for doing so is governed by Article R. 196-1 of the LPF: the claim must in principle be submitted no later than 31 December of the second year following that in which the tax was put up for collection or the contested tax was paid. This time limit is an absolute point requiring care, because failure to observe it makes the claim inadmissible, whatever the merits of the case.

The claim is first addressed to the tax authorities. In the event of rejection, express or tacit, the dispute may be brought before the administrative court (tribunal administratif), property capital gains tax falling within the jurisdiction of the administrative courts. The seller has an interest in accompanying the claim with a request to defer payment so as not to have to pay the contested sums during the examination.

On the merits, the burden of proof rests largely on the taxpayer who intends to increase the acquisition price: it is for them to justify the reality, nature and amount of the expenditure. Hence the importance of keeping all contractors' invoices, quotes, plans and certificates throughout the holding period, and at least until the period of assessment has expired after the sale. A file built up as matters proceed is infinitely better than an improvised reconstruction under the pressure of an audit.

Conclusion

Property capital gains tax is not a mere formality that the notary settles at the end of the sale. Two allowance scales that do not coincide, a radically different regime depending on whether the SCI is subject to income tax or corporation tax, a surtax above €50,000 and a right of audit exercised long after signature: each of these parameters substantially changes the result. The stance of this guide is clear: the stakes lie less in the rate, set by law, than in the quality of the increased acquisition price and the strength of the supporting file for the works.

The practical recommendation fits in one sentence: before any sale of a second home or of a building held through an SCI, have income tax and social charges simulated separately, choose between the flat rate and actual works costs on the basis of the invoices actually available, and keep these supporting documents well beyond the sale. If a reassessment occurs, reply within the thirty-day period by producing the evidence, never letting silence amount to acceptance.

Frequently asked questions

Is a second home exempt after a certain number of years? It is exempt from income tax at the end of the twenty-second year of ownership and from social charges only at the end of the thirtieth year (Article 150 VC of the CGI). Between twenty-two and thirty years, income tax is nil but social charges remain due on a fraction of the capital gain. Total exemption is therefore achieved only after thirty years of ownership.

Can works carried out oneself be deducted from the capital gain? No. Only works of construction, reconstruction, extension or improvement invoiced by a contractor are accepted as an increase to the acquisition price (Article 150 VB of the CGI). The cost of materials bought by the owner for works that they carry out themselves is refused by the authorities. In the absence of contractors' invoices, it remains possible to apply the 15% flat rate if the property has been held for more than five years.

How is the property capital gain of an SCI calculated? It all depends on the tax regime. An SCI subject to income tax falls within the individuals' capital gains regime, with an allowance for length of ownership counted from the company's acquisition of the property. An SCI subject to corporation tax calculates a business capital gain by reference to the net book value, with no allowance for length of ownership, the depreciation taken increasing the taxable capital gain.

What is the overall rate of tax on the capital gain in 2026? The flat rate is 19% for income tax and 17.2% for social charges, that is 36.2% on the net capital gain after allowances. To this is added a progressive surtax of 2% to 6% where the taxable capital gain exceeds €50,000 (Article 1609 nonies G of the CGI), except for building land.

Within what period can the authorities reassess a property capital gain? The authorities have a right of assessment which, for income tax, is exercised until the end of the third year following that of the sale (Article L. 169 of the LPF). They may thus challenge the works and costs deducted several months, even several years, after signature. It is therefore essential to keep all supporting documents throughout this period.

How can a property capital gains reassessment be challenged? The challenge begins with a written reply to the notice of proposed adjustment within thirty days, extendable by thirty days (Article L. 57 of the LPF), producing the invoices and demonstrating the nature of the works. If this fails, hierarchical appeals and then a contentious claim are possible, the latter having to be brought no later than 31 December of the second year following collection (Article R. 196-1 of the LPF).

Is it better to use the 15% flat rate or actual works costs? The 15% flat rate of the acquisition price applies without supporting documents once the property has been held for more than five years, and suits owners with few invoices. Actual costs are preferable where the amount of documented improvement works exceeds this flat rate, in particular after a major renovation. The two methods cannot be combined: the one resulting in the higher increase must be chosen, invoices in support.