Tax optimisation tips for property owners

Deductible maintenance and mortgage costs During the period of ownership, as long as the imputed rental value has not been abolished, two deductions can currently be claimed:

1. the effectively paid mortgage interest
These are no longer very high, as is well known, unless one has already taken out long-term mortgages at high conditions years ago.

2. expenses for maintenance and repairs
Only the costs that maintain the value of the property are deductible, but not value-enhancing expenses. During the period of ownership these costs can be deducted from income tax. Valuable tip: keep all receipts such as painting, sanitary or e.g. oven repair bills and submit them with your annual tax return.
In the case of apartments (condominiums), the administration fees and frequent investments in energy saving (thermal insulation, energy-saving windows, installation of heat pumps, heat recovery, etc.) are also deductible. Payment into the renewal fund is not tax deductible in all cantons.
While mortgage interest can be deducted according to effective expenditure, the possibility of deducting building maintenance is regulated differently in the individual cantons. Either a flat-rate amount (10 percent to 25 percent of the imputed rental value) can be deducted from the imputed rental value as a building maintenance lump sum or, if the effectively verifiable expenses were higher, the effective costs can be deducted in most cantons. In many cantons, this option is available on an annual basis (e.g. the canton of Zurich with a flat rate of 20 percent), while in others the deduction mode must be selected for a certain period of time (e.g. five years).

Wealth Taxes
Real estate is only recorded at about 70 percent of its market value for wealth tax purposes. When buying real estate for CHF 1 million, a tax-related reduction of around 30 percent or CHF 300,000 of the assets can therefore be expected. The taxable assets are reduced by this amount, resulting in a (slight) tax reduction. However, wealth taxes can neither be influenced positively nor negatively by homeowners. The state determines the key for determining the asset value.

Property taxes
About 50 percent of the cantons levy an annual property tax on the ownership of private property. This tax can be levied either at cantonal or communal level and ranges from 0.3 to 3 per mille of the official market or taxable value, depending on the canton. There are no such taxes in the canton of Zurich.

Indirect amortization
If the mortgage is paid off indirectly via a pillar 3a or 3b, very high tax savings can be achieved. This is possible because with a pillar 3a mortgage, inpayments can be deducted from taxable income and with a pillar 3b mortgage, depending on the product, inpayments/interest are not subject to income tax.
But watch out: We advise you to separate "save" and "insure". Save via a bank account and insure via insurance! Do not combine these different topics over a 20- to 30-year savings/risk insurance! Since contracts with the 3rd pillar usually run until retirement, a change in life circumstances (divorce, house sale) very often results in high costs with the termination of the contract.

Special case of underuse and use of an office at home
If the children "fly out" and leave the parental home, you can claim an "underuse" in the imputed rental value and deduct the rooms that are no longer needed.
You can also deduct the home use of an office room for business purposes from income tax in many cantons and from federal tax if you regularly work at home. However, certain facts must also be available (e.g. that the journey to work takes more than an hour). If you claim this tax deduction, you must waive the deduction of the professional lump sum. Instead, you can deduct other professional expenses such as telephone, cleaning, lighting, computers, etc. It is worth taking a look at the guide to the tax return.

Tax optimisation for property sellers

Property gains taxes are often the biggest worry for a real estate seller. This tax is levied by cantons and municipalities but not by the federal government and represents a very important source of income for the municipalities and cantons.
The profit from a property sale is calculated as the difference between the sale and purchase price. It is usually possible to add to the prime costs the value-adding investments made since the purchase. In addition, the state grants a reduction (rebate) on the tax rate depending on the holding period. This takes partial account of the inflation between the time of purchase and sale. Only in a few cantons is it possible to fully offset inflation against the purchase price.

The most important tips

Always keep proof of value-adding investments
Collect all evidence that has value-adding character. These must be collected for 20 years or more, depending on the canton. They can only be deducted when the property is sold.

Examine tax systems - dualistic vs. monistic tax systems
The cantons of ZH, BE, UR, SZ, NW, BS, BL, TI and JU apply the monistic tax system. Here, real estate gains of private and legal persons are taxed. The other cantons apply the dualistic system. Here, the real estate gains of companies (legal entities) are taxed only with the (usually lower) profit taxes and not, as with natural persons, with the real estate profit taxes. Here it is worthwhile, especially in cantons with favourable corporate taxes (e.g. Zug, Schwyz), to buy/sell non-privately used real estate through legal entities/companies.

Determining the value 20 years ago in the
canton of Zurich as a major nuisance
In the Canton of Zurich, if the holding period is more than 20 years, it is based on the presumed market value 20 years ago. There are major discussions and heated talks with the tax authorities. Ginesta Immobilien specializes in tax consulting for such complex cases. As the sole broker for its clients. Thanks to our accumulated market transactions, as well as tax assessments over the past 30 years, we can negotiate with the tax authorities on an equal footing. As the revenues of the real estate profit taxes account for up to 30-40 percent of the local financial budget, depending on the municipality, the values proposed by the municipal tax office are usually very low and to the disadvantage of our clients. It is important to find a correct and fair solution with the collected data. Tip: What many do not know: Alternatively, one can always assume the purchase price, if, for example, it was higher 25 years ago than the estimated value 20 years ago.

Early repayment penalties for the cancellation of a mortgage
For 1-2 years now, early repayment fees paid to a bank as a result of early termination of the mortgage contract have been deductible from the real estate profit tax. In the past, these costs could be deducted from income, but often only up to a certain amount. Be careful with refinancing (e.g. payment of an early repayment fee with simultaneous conclusion of a new mortgage term): These are still deductible from income tax, but limited to a maximum amount.

Tax deferral due to replacement purchase
The real estate profit tax does not have to be paid for owner-occupied residential property if you buy a replacement property and reinvest the profit. However, the replacement property must be held in the same canton for a certain period of time, otherwise there is a risk of subsequent taxation. For example, if the replacement property is held for at least five years, a profit can be offset against any loss of the replacement property in the canton of Zurich. In addition, the entire period of ownership is taken into account when assessing the holding period. The subject is very complex and it is worth examining each case individually.

Status of "commercial real estate agent" as a tax SUPERGAU
Be careful when you privately build over a property and then sell apartments. There is a danger of being classified as a "commercial real estate agent". In the case of a community of heirs, the case is clearly settled to the disadvantage of the community of heirs on the basis of a Federal Court ruling. In the case of private individuals, the situation is not entirely clear, unless you make regular developments. With this tax SUPERGAU (the worst-case scenario) you pay federal tax and AHV after the real estate gains tax on the real estate gains. In addition, in future all your rental income from rental properties will be taxed with federal tax and AHV.

Better clarify before you act
If in doubt, consult a tax lawyer to obtain a tax ruling so that it is clear how the tax authorities assess a transaction. If you create negative facts, you can no longer conduct positive negotiations. Plan ahead and do not rely on (tax) commissioner chance. Especially in cantons with a strict interpretation of the law (e.g. Canton Zurich) it is important not to make any mistakes.

Up to date

The imputed rental value on the test bench

Throughout Switzerland, this form of income taxation applies to homeowners who live in their own house, apartment or holiday property. By occupying their own four walls, owners forego any possible rental income. However, this rental income would increase the taxable income and thus also the income taxes. The state does not voluntarily waive this potential income. It therefore charges the homeowner a notional income. According to current federal court practice, this should not be less than 60 percent of a market rent. The imputed rental value is calculated very differently in the cantons. In most cases, the cantons rely on presumed land values and estimated values from building insurance companies to determine the property tax value and imputed rental value.
The imputed rental value increases the taxable income of a homeowner. This offsetting cannot be substantially reduced without the deduction of mortgage interest, despite the deductibility of maintenance costs. Especially older people who have repaid their mortgages and live on an annuity complain about this tax practice, which results in a considerable increase in their taxable income. Due to the currently very low mortgage interest rates, a home of one's own would have to be mortgaged at around 80 to 90 percent of its current value in order not to trigger a negative tax effect. However, such high loan-to-value ratios are no longer possible today without additional collateral. The problem has been recognised politically and the National Council and the Council of States have already addressed the abolition of the imputed rental value (and thus the abolition of deductions for maintenance and debt interest) on several occasions. At present, efforts are again being made to abolish the imputed rental value. This could have negative consequences for the banks, as more mortgages will then be repaid. But the black money economy could also flourish again if maintenance costs (craftsmen's bills) can no longer be deducted from taxes. Furthermore, the properties would probably no longer be so well maintained.

Here you can find the complete article in German for download as PDF.