Deducting Loan Interest in an SCI

Deducting loan interest in an SCI

Loan interest is usually the largest deductible cost an SCI (société civile immobilière) has, and where it can be deducted - and, just as importantly, where it cannot - decides how much tax a leveraged property investment really saves. For an income-tax SCI that lets its property, the interest on a loan taken by the company is deducted from the rental income, and a member who borrows personally to fund their stake can deduct that interest too, at their own level. But loan interest is treated differently from other property expenses in one crucial respect: it cannot be set against a member's other income, only against property income. This guide sets out what interest a company loan lets you deduct, how a member's personal loan is treated, the limit that keeps interest out of your global income, and how the picture changes for an SCI at corporation tax.

The subject rewards precision because the routes are governed by specific rules and a well-known trap. A leveraged SCI often runs a property loss in its early years, and investors sometimes assume that loss will shelter their salary or other income. For the interest portion of the loss, it will not - that portion can only be carried forward against future rents. Understanding this at the outset is what makes the difference between an accurate projection of the after-tax cost of a purchase and a disappointed one.

Company loan: interest against the rental income

Where the SCI takes the loan, the interest is a deduction against the company's property income. An SCI can deduct from its gross income the interest on loans it has contracted (CGI Art. 31, I, 1°, d) either for the acquisition, construction, repair or improvement of its buildings - including the fraction of the interest relating to the sums used to pay the transfer duties on the purchase - or for the conservation of those properties. The scope is therefore wide: it covers the interest on the acquisition loan, on works loans, and even the slice of interest attributable to the borrowing used to fund the acquisition duty, all deductible against the rents.

This deduction sits within the general rule for property expenses, which are deductible for their real amount where they were incurred to acquire or conserve the income (CGI Art. 13). For a member who is an individual letting the property through the SCI, the company's results are determined under the rules of property income (revenus fonciers), and the interest reduces those results before the net figure is shared between the members according to their rights. So a company loan directly lowers the taxable rental income that flows through to each member.

One refinement is worth noting because it protects the deduction on a refinancing. A loan taken to repay or replace an earlier loan that itself funded the acquisition, construction, repair or improvement of the property keeps the benefit of the deduction, provided the conditions are met - in particular that the new loan is subscribed to repay or substitute for the initial one. The Conseil d'État has confirmed that the continuity of the purpose of the borrowing is enough to allow the deduction of interest on a substitute loan, even in some cases where the debt refinanced did not itself carry interest (CE, 28 March 2014, nos. 350816 and 350817). So refinancing an SCI's acquisition loan does not, by itself, lose the interest deduction - but the substitution has to be documented so the continuity of purpose is clear.

Personal loans: deducting interest at the member's level

Interest is also deductible where a member borrows personally rather than through the company, but the deduction is taken at the member's level, against their share of the company's property income. Two situations are recognised. A member can deduct the interest on a loan subscribed personally to buy back all or part of the shares corresponding to another member's rights - that is, to acquire a co-member's stake. And a member can deduct the interest on a loan subscribed personally to make their contribution to the company or to acquire their shares. In each case the deduction is against the member's own share of the property income determined by the SCI, not against the company's results as a whole.

This gives a member who funds their stake with a personal loan an interest deduction that parallels the one the company would have on a company loan - but located on the member's own tax return, reducing the property income attributed to them. It is the mechanism behind the common family arrangement in which each member borrows their share of the price and pays it into the SCI: the members, not the company, carry the debt, and each deducts the interest on their borrowing against their share of the rents. The conditions attach to the purpose of the loan - acquiring the shares, or buying out another member - so the borrowing has to be genuinely and traceably for that purpose to support the deduction.

The same substitution principle applies here. Where a member refinances a personal loan that funded the acquisition of their shares, the continuity of the purpose of the debt allows the interest on the replacement loan to remain deductible, on the same conditions as for a company loan. What matters throughout is that the loan - company or personal, original or substitute - is tied to acquiring, improving, repairing or conserving the property, or to acquiring or buying out the shares; a loan taken for an unrelated purpose does not give the deduction, however it is labelled.

Which loan interest can your SCI deduct?

The deduction depends on who borrowed and why. Pick your case - the check shows how the interest is treated.

The key limit: interest does not reach your global income

Here is the point that most often surprises a leveraged investor. When an income-tax SCI runs a property loss - a property deficit (déficit foncier) - that loss is calculated by the company and split between the members in proportion to their rights in the profits. Each member can then set part of that loss against their global income, meaning their salary and other income, but only up to €10,700 a year, and only for the fraction of the loss that comes from deductible expenses other than loan interest (CGI Art. 156, I, 3°). The interest is carved out of that relief.

The consequence is decisive for the maths of a leveraged purchase. The part of the property loss attributable to loan interest cannot be set against the member's other income at all: it can only be carried forward and set against the property income of the following years, for up to ten years. So in the early years of a heavily borrowed SCI, when the interest is high and the rents modest, the interest builds up a property deficit that waits to be used against future rents rather than sheltering the member's salary now. Only the non-interest expenses - works, management costs, insurance and the like - feed the €10,700 relief against global income, and even then within that annual ceiling.

This is why an accurate projection separates the two streams. The non-interest expenses can produce an immediate saving against other income, within the €10,700 limit; the interest produces a deferred saving, usable only when the property turns a positive rental result. An investor who models the whole loss as if it reduced their salary will overstate the early tax benefit of the purchase. Planning the financing, the works and the timing with this split in mind is what turns the deduction rules into a realistic after-tax cost - and it is a large part of why the financing structure of an SCI, examined in our guide on financing an SCI purchase, has to be decided with the tax position in view.

Where does the interest deduction land?

The interest deduction behaves differently from other costs. Pick the point you want to understand - the check explains it.

Corporation-tax SCI: interest against the corporate base

Where the SCI has opted for corporation tax, loan interest is treated differently again. The interest on debt contracted for the needs or in the interest of the company is deductible from the corporation-tax base, deducted on the results of the accounting period in which the interest accrues. The important difference is that a corporation-tax SCI also deducts the depreciation (amortissement) of the building alongside the interest, which together can wipe out the taxable profit for many years - the interest and the depreciation reinforcing each other to defer tax on the rents.

That advantage comes with a matching cost at the other end, and with technical limits worth knowing. On a later sale, the depreciation that sheltered the rents reduces the tax cost of the property and so enlarges the taxable gain, which is computed under the corporate rules rather than the private taper - so the interest-and-depreciation shelter is, in part, a deferral rather than a permanent saving. And where members finance the company through current accounts, the two statutory limits on deducting the interest paid on those accounts - that the share capital be fully paid up, and that the rate not exceed a capped reference rate - apply to corporation-tax companies (and to income-tax companies carrying on a commercial or comparable activity on actual profits), but not to a pure property-income SCI. A further limit, on the deduction of depreciation where a non-corporation-tax company acquires an asset to let it, restricts the ability to build losses through accelerated depreciation. The corporation-tax route therefore changes not just where the interest is deducted but the whole shape of the investment's tax, and it should be modelled across the hold and the exit rather than judged on the annual interest deduction alone.

Deducting loan interest in an SCI - at a glance

Frequently asked questions about deducting loan interest in an SCI

This article is for general information only and states French tax rules as published in the sources available at the date shown above, including the property-deficit ceiling current for 2026. It does not constitute legal or tax advice. The deductibility of loan interest depends on the loan's purpose, the SCI's regime and the member's position. Always seek qualified legal and tax advice before relying on an interest deduction.