The income cap on deductions

Article 16-ter of the income tax code, introduced by the 2025 budget law and in force from the 2025 tax year, sets an overall cap on the charges and expenditure deductible by taxpayers with total income above 75,000 euros. The cap operates in addition to the limits proper to each relief.

Below that threshold nothing changes: all deductions are available in full, within the limits set by each relieving provision. Checking the threshold is therefore the first step.

One clarification on the relevant income: total income is taken net of the income of the unit used as the main home and its appurtenances. Excluding the main home lowers the income compared with the threshold.

The cap is calculated by multiplying a base amount, determined by reference to income, by a coefficient determined by reference to the number of dependent children. The two parameters are read together rather than separately.

Total income	Base amount
Above 75,000 and not above 100,000 euros	14,000 euros
Above 100,000 euros	8,000 euros

Household composition	Coefficient
No dependent children	0.50
One dependent child	0.70
Two dependent children	0.85
More than two children, or at least one child with certified disability	1.00

Combining the two parameters produces eight values, and it is useful to have them to hand. The applicable value should be identified before any estimate.

Household	Income 75,001 to 100,000	Income above 100,000
No children	7,000 euros	4,000 euros
One child	9,800 euros	5,600 euros
Two children	11,900 euros	6,800 euros
Three or more children, or a child with disability	14,000 euros	8,000 euros

This is the point most general sources report incorrectly, and the difference is substantial. It concerns what the cap actually applies to.

The cap concerns the maximum amount of deductible expenditure on which the tax deduction is calculated, and not the maximum amount of the deduction. The difference between the two concepts is a factor equal to the rate.

A taxpayer with a cap of 7,000 euros is therefore not limited to 7,000 euros of deduction: they are limited to 7,000 euros of expenditure on which to apply the rates of the various reliefs. The effect in tax saved is therefore much smaller.

The distinction completely changes the order of magnitude of the effect, and it is why a hasty reading of the mechanism produces either unwarranted alarm or, conversely, underestimation. It is worth checking against the text of the article rather than secondary sources.

This is what greatly softens the impact on building deductions and should be known together with the mechanism. It is the relevance of the annual instalment alone.

For charges deductible over several instalments or years, what counts is the instalment for the year, not the whole expenditure incurred. On building deductions the instalment is a tenth of the expenditure.

An example shows the scope of the rule. A furniture allowance of 5,000 euros spread over ten instalments affects the annual cap only for the instalment of the year, 500 euros, and not for the whole amount.

The consequence for building deductions is considerable. Because they are spread over ten instalments, their annual impact on the cap is one tenth of the expenditure incurred. Works costing 96,000 euros affect the cap by 9,600 euros a year, not by 96,000.

A real effect nevertheless remains: that tenth is added to all the taxpayer's other deductible charges for the year, and on households without children and with high income the cap can be reached. The cap must be tested against all deductible charges and not the building one alone.

Some categories of expenditure remain outside the calculation of the cap. The list of exclusions should be checked against the text in force.

They include, among others, deductible medical expenses, investments in start ups and innovative small and medium enterprises, and certain expenditure connected with mortgages and insurance. The exclusions reduce the chance of the cap being reached.

One exclusion has direct significance here: building works whose expenditure was incurred up to 31 December 2024 remain outside the calculation. The cap therefore operates on later expenditure, and deductions accrued under the earlier regimes retain their availability.

Calculating the cap does not belong to the professional. Knowing it does, for two reasons.

The first is that on a client with a high income and no dependent children, the actual benefit of a project may be lower than the nominal one, and presenting an estimate without flagging the mechanism invites a challenge. The point should be flagged in writing in the estimate.

The second is that the rule on annual instalments makes the impact far smaller than a client may fear if they have read an imprecise source. Being able to explain that the annual impact is one tenth of the expenditure is a piece of advice that reassures on correct grounds.

The operational point concerns drafting: the estimate flags the existence of the cap, states the threshold at which it bites, and refers the client's tax adviser to check the actual position. The professional flags the point but does not replace the adviser.

Reading the cap as a limit on the deduction rather than on expenditure is the first, and overstates the effect by a considerable factor. The check is made against the text of article 16-ter.

Applying the cap to the whole cost of the works rather than to the annual instalment is the second, and is the error generating unwarranted alarm. The instalment for the year is a tenth of the expenditure incurred.

Overlooking the exclusion of expenditure incurred up to 2024 is the third. The instalments of that expenditure stay outside the calculation.

Making no mention of the mechanism in an estimate for a client with a high income is the fourth. A single line of warning costs nothing and prevents the challenge.