Tax Tip 5 - Capital Gains Tax on Property Sales - What to Deduct


Essential tips for capital gains tax and what you should deduct from your taxes. Important tax tips for various cantons in Switzerland. Key considerations when selling property and insights from practical experience are provided in this Smart eTax blog post.
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The capital gains tax for propeties

is a significant aspect when selling property in Switzerland. It is calculated by subtracting the investment costs from the sale price, which determines the taxable gain. For property owners and potential sellers, it is crucial to understand the specific investment costs in each canton. Below, you will find a summary of how capital gains tax is handled in different cantons.

 

Key Points When Selling a Property

When selling a property, it is essential to consider the following:

  • Market Value Assessment: Have your property professionally appraised to set a realistic selling price.
  • Preparing the Property: A well-presented property sells better. Minor repairs and attractive presentation can help.
  • Marketing: Use various channels to advertise your property, such as online platforms, local media, and real estate agents.
  • Property Viewings: Organize viewings professionally and flexibly to present the property to potential buyers in the best possible light.
  • Negotiations: Be prepared for price negotiations and keep your minimum price in mind.
  • Contract Processing: Ensure the contract is processed correctly and completely, ideally with the support of a notary.
  • Transfer of Ownership: Plan the handover carefully and prepare a handover protocol.

 

Practical Tip: Documenting Investments in Properties

Why is accurate documentation important for capital gains tax?

  • Deductions on Capital Gains Tax: Value-adding investments can be deducted from the capital gains tax, leading to significant tax savings.
  • Confirmation by the Tax Office: A detailed record of all investments helps the tax office confirm that they are value-adding.
  • Tax Assessment as Proof: Detailed documentation makes it easier to prove the value-adding investments during the tax assessment and helps clearly define the deductible portion.
  • Avoiding Estimates and Uncertainties: Without detailed records, the tax office might rely on estimates, which can lead to less favorable classifications.

Find a tax expert on Smart eTax to help you fill out your tax return and save a significant amount on capital gains tax.

 

What to Consider When Selling a Property/Real Estate/Residential Property?

Investments and Tax Deductions on Sale

For properties, distinguishing between maintenance costs and value-adding investments is crucial for tax purposes:

  • Maintenance Costs: These serve to maintain the existing value of the property without changing its design or purpose. They are tax-deductible and include measures that keep the property in its original condition.
  • Value-Adding Investments: These lead to a permanent increase in the property's value. They are not deductible for income tax purposes but can be considered as investment costs for capital gains tax.
  • Mixed Investments: If a measure includes both maintenance and value-adding elements, the maintenance portion is deductible, while the value-adding part cannot be deducted. A precise allocation is necessary.

These distinctions are essential for the correct tax treatment of renovation and maintenance expenses on properties.

 

Cantonal Overview of Capital Gains Tax in Switzerland

Capital gains tax varies significantly between Swiss cantons, both in terms of calculation methodology and tax rates. Here's an overview of some of the key differences between cantons:

 

General Capital Gains Tax Rules in Switzerland

  • Tax Collection: In the cantons of Zug and Zurich, the tax is collected by municipalities. In Basel-Stadt, Bern, Fribourg, Graubünden, Jura, Obwalden, and Schaffhausen, the tax is collected by both the canton and municipalities. In other cantons, the canton is responsible.
  • Municipal Participation: In cantons where the canton collects the tax, municipalities are often entitled to a share of the tax revenue.
  • Place of Taxation: The tax is levied in the canton or municipality where the property is located.

 

Specific Capital Gains Tax Rules in Individual Cantons

  • Basel-Land, Bern, Graubünden, Jura, Schwyz: The total gains accumulated over a certain period are taxed.
  • Tax-Free After 25 Years in Canton Geneva: In Geneva, capital gains tax is no longer applicable after 25 years of property ownership.

 

How Much is the Capital Gains Tax When Selling Property in My Canton?

  • Proportional Rate: Eleven cantons (Aargau, Appenzell-Ausserrhoden, Basel-Stadt, Fribourg, Geneva, Nidwalden, Obwalden, Ticino, Thurgau, Uri, Vaud) use a proportional tax rate.
  • Progressive Rate: Other cantons apply a progressive rate.
  • Duration of Ownership: In nearly all cantons, the tax rate depends on how long the property has been owned.
  • Surcharge for Short-Term Gains: All cantons except Solothurn apply a surcharge for short-term gains to curb speculation.
  • Discount for Long-Term Ownership: All cantons, except Obwalden and parts of Basel-Land, offer discounts for long-term ownership.
    • Example Canton Zurich: There is a 50% surcharge for sales within one year and 25% for sales within two years. Discounts are given after five years (5%), ten years (20%), and twenty years (50%).

Capital Gains Tax Calculators for Cantons:

 

Who Pays the Capital Gains Tax?

The responsibility for paying the capital gains tax lies with the seller, and the amount of tax is based on the net profit made from the sale.

Factors Influencing Capital Gains Tax: Profit and Duration of Ownership

The amount of capital gains tax is influenced not only by the profit made but also by how long the property has been owned. A smaller profit and a longer ownership period result in a reduced tax burden.

 

Securing Capital Gains Tax by the Municipality

Municipalities often secure capital gains tax collection by placing a lien on the property. If the seller fails to pay the tax, the municipality can enforce a legal lien on the property. Buyers can protect themselves by:

  • Verifying with the tax office that the capital gains tax has been paid.
  • Requiring the seller to deposit the owed tax with the tax office or into a bank account.
  • Contractually stipulating that the purchase price will only be transferred after the capital gains tax is paid.
  • Agreeing that the buyer pays the capital gains tax and deducts the amount from the purchase price.
  • USER Mandant
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