Does attempting to rent at a price that is out of line with market rates prevent one from deducting real estate losses?

A couple had rented out a house they owned to tenants who had to be evicted with the assistance of law enforcement in April 2018.

Given the damage caused by the tenants, they had to carry out repair and maintenance work. They then, in December 2018, signed a contract with a real estate agency to rent out the house.

Although three people expressed interest, they felt the rent was too high. One of them even tried to negotiate the rent, but the taxpayers refused.

The house therefore remained vacant between April 2018 and 2021, as the taxpayers had moved into the house by that time.

The couple subsequently underwent a tax audit regarding their property income. As a result of the audit,administration they had incorrectly claimed property-related losses for the years 2019 and 2020 and issued them a tax assessment.

The latter was challenged all the way to the Administrative Court of Appeals.

The court will then rule that the expenses incurred for the renovation of the house were not deductible because the taxpayers had not entered into a new lease and had not demonstrated that they had taken the necessary steps to rent out the house.

In particular, the Court finds that the lack of due diligence is demonstrated by the refusal to reduce the rent “to bring it in line with the characteristics of the local rental market.”

The tax assessment is therefore confirmed.

CAA Nancy, June 25, 2026, No. 24NC03052

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