Tax Tip 2 - Deductible Property Maintenance Costs


The purchase or ownership of a home in Switzerland is not only a life goal for many people but also offers attractive tax benefits. In our blog series "Tax Tips," we highlight how you can save on taxes through real estate investments.

Important Aspects for Property Owners Regarding the Tax Treatment of Mortgage Debts

Mortgage debt plays a crucial role in the tax declaration for property owners in Switzerland. Below are some basic points to consider:

Deducting Mortgage Interest:
Mortgage interest, meaning the interest you pay on your mortgage, is currently tax-deductible. This means that you can deduct the paid interest from your taxable income, reducing your tax burden.

Imputed Rental Value:
In Switzerland, homeowners are taxed on an imputed rental value. This is a fictional rental value you must declare if you live in your own property. The imputed rental value compensates for the benefit of living rent-free. Mortgage interest can be offset against this imputed rental value.

Debt Principle:
In Switzerland, the "debt principle" applies, meaning that debt, including mortgage debt, reduces taxable assets. This can have a positive impact on wealth tax.

Indirect Amortization:
Many homeowners in Switzerland use indirect amortization of their mortgage via a tied pension plan (Pillar 3a). Contributions to Pillar 3a are tax-deductible up to a certain maximum. The mortgage remains nominally unchanged, allowing continued deduction of mortgage interest.

Tax Optimization:
Mortgage strategy can be part of tax optimization. Keeping a certain level of mortgage debt can be beneficial for tax deductions. However, this should always be viewed in the context of your overall financial situation and in consultation with a financial advisor.

Cantonal Differences:
Exact rules vary between cantons. It's advisable to check with your cantonal tax office or a tax advisor for specific regulations in your canton of residence. Some examples can be found below.

Deductible Maintenance Costs:
Ongoing maintenance costs for your property, such as insurance, repairs, and maintenance, are also deductible.

 

Flat-Rate Deduction vs. Actual Costs

In Switzerland, you can choose between a flat-rate deduction and the deduction of actual maintenance costs. The flat-rate deduction is simpler as no detailed breakdown is required. However, deducting actual costs can be more advantageous, especially if you incur high maintenance or renovation expenses. For condominium owners, this is especially the case when large annual contributions to a renovation fund are made. Property owners should also note that value-increasing investments must be declared.

 

Cantonal Differences

Tax rules vary from canton to canton. It's advisable to consult your cantonal tax authority or a tax advisor for specific regulations in your canton. Here is a summary for the cantons of Zurich, Zug, and Thurgau:

 

Deductible Property Costs in Zurich

  • Imputed Rental Value:
    For owner-occupied apartments in multi-family or commercial buildings, the imputed rental value is set at 70% of the market rent.

  • Maintenance and Management Costs:
    These costs can be deducted either as a flat-rate or based on actual expenses. The flat-rate deduction is 20% of the gross rental income. For commercially used properties, only actual costs are deductible.

  • Energy-Saving and Environmental Protection Measures:
    Costs for energy-saving measures and renewable energy usage are deductible, as long as they are not subsidized. Demolition costs for a replacement building are also deductible.

  • Building Lease Interest:
    These can be deducted in addition to maintenance and management costs.

 

Deductible Property Costs in Zug

  • Maintenance and Management Costs:
    Again, you have the choice between a flat-rate deduction and actual costs. The flat-rate deduction is either 10% or 20% of the rental value, depending on the building’s age.

  • Energy-Saving and Environmental Protection Measures:
    Costs for energy-saving and environmental protection measures are deductible. Demolition costs for replacement buildings can also be deducted.

  • Market Rent in Case of Under-Use:
    If a property is clearly under-used, the market rent can be reduced.

 

Deductible Property Costs in Thurgau

  • Maintenance and Operating Costs:
    Recurrent repairs, property insurance premiums, annual dues, and other specified costs are deductible.

  • Energy-Saving and Environmental Protection Measures:
    Similar to other cantons, costs for energy-saving measures and environmental protection are deductible.

  • Demolition Costs:
    Demolition costs for replacement buildings are also deductible in Thurgau.

 

Special Cases for Energy-Saving and Environmental Protection Investments

Investments aimed at energy savings and environmental protection, as well as demolition costs for replacement buildings, are a special category of tax-deductible expenses. These costs can be deducted over the two tax periods following the investment if they cannot be fully deducted in the period they were incurred.

 

Delimitation and Treatment of Property Maintenance Costs

It’s crucial to differentiate between maintenance costs that preserve value and those that increase value. Preservation expenses are tax-deductible, while value-increasing expenses are not deductible for income tax but may be considered as capital expenses for property gains tax.

 

Practical Tip: Documenting Property Investments

Accurate documentation is essential for tax purposes, particularly when it comes to property gains tax. By submitting a detailed list of investments, you provide evidence that certain expenses were value-increasing, which could significantly reduce your tax burden.

 

Summary

Investing in a home in Switzerland can be a smart financial decision, offering not only personal comfort but also tax benefits. It's essential to examine the possibilities and regulations carefully and seek professional advice to maximize your investment.

 

Important Links for Deductible Maintenance Costs by Canton:

  • USER Mandant
  • Treuhänder
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