Tax tip: Real estate
Any kind of real estate you own is of course also part of your wealth under Swiss tax law.
Ranging from your own small apartment in the city center to your countryside get-away, a house that you are renting out or the family home just outside Zurich.
For real-estate owners there are even a couple of different tips, depending on the usage of the property, financing and work that’s being done. We are going to look at 4 different ones:
Maintenance vs. increasing value
Mortgage & amortization
The Swiss “Eigenmietwert”
1. Maintenance vs. increasing value
Rule of thumb: Everything you invest in your house or apartment which counts as “maintenance” is tax deductible.
Maintenance means all improvements or renovations you are doing with the goal to preserve the value of the property. Everything that makes your property more valuable is usually not tax deductible and gets rejected. There are of course quite some grey zones – like always. 😅
You can find lots of examples online which can give you an idea of how to categorize your spendings.
❄️ Example A
When you switch your old fridge for a new one you can add the expense to your tax statement.
If you should at the same time though also add a freezer, the expense might not get accepted. Adding a new electrical appliance is considered as something that increases the value.
🏡 Example B
Renovating the facade or changing the heating count as maintenance.
Adding a Sauna or a terrace are again probably increasing the property’s value though and do not count as maintenance. 🤨
Still - it is very important to keep all invoices of investments that increased the property’s market value in case you want to sell your real-estate at some point. If you sell your apartment you pay a “Grundstücksgewinnsteuer” (Tip No. 4) which can be lowered by taking all investments you could not deduct from tax into account.
The only exceptions to this rule are investments that you made in order to the increase the energy efficiency of your property. Renovations that impact energy consumption are usually quite big investments. Improving heat insulation through renovating the floor of the building, installing new windows or renovating walls can add up.
Therefore it is best to plan ahead and maybe split the renovations or purchases of solar panels over two calendar years (what counts are dates on the invoices of the workers or company) as there is a maximum you can send in each year.
Please look up the maximum for your “Kanton”, because of course it is different in each of them.
When it comes to maintenance costs you can even decide year per year if you want to go for the flat rate tax deduction or effectively calculate how much you can deduct. Usually, if you have a lot of spendings in the previous year, it would make sense to calculate the deductions in details, otherwise the flat rate could pay off.
2. Mortage & amortization
What is amortisation?
Amortisation describes the paying off of debt with a fixed repayment schedule in defined installments. 💸
Direct vs. indirect amortization
Direct amortisation describes the process of paying back a loan in regular installments over a set period of time. When using the indirect amortisation scheme though, your money will be invested and then paid back in full at the end of the debt period.
Both ways of paying back mortgages have their specific pros and cons. Indirect amortisation helps in saving taxes as the money you pay back is secured and invested in a Säule 3a account, which will count as the bank’s security. The interest you pay on your mortgage can be deducted from your taxes.
And as you can deduct mortgage interest and and payments to your Säule 3a account completely from your taxable income, you might be able to save a lot.
Throughout the term of the mortgage of course also amount of interest you pay on the installments changes (gets lower). So make sure you calculate both options and find out which scheme fits best with your financial life.
3. The Swiss “Eigenmietwert”
As the “Eigenmietwert” describes a tax peculiarity of Swiss tax law, there is not really a good English translation, but some online resources have found that “notional rental value” best describes it. It is a kind of “estimated rent” which you have to pay on your property - even if you live in it yourself.
The “Eigenmietwert” is defined by the Kanton or Bund and is added to your taxable income. If the estimated value seems to be too high, you can claim this with the authorities.
If your children have moved out or if some rooms of your house are really not used at all, you can request a reduction of the “Eigenmietwert”. If granted, the rooms are not allowed to be used anymore at all - not even as storage space.
On the other side - if you are the landlord yourself and earn money by renting out your apartment, rooms or house, you need to pay taxes on your gains. These “Mietzinseinnahmen” will also count as part of your taxable income.
Saving taxes through debt financing
We already learned that mortgage interest can be deducted from your taxable income in Tax tip No. 2!
So, in case you finance your property via a mortgage, you can sidestep the “Eigenmietwert” charges. This works if case the mortgage interest is as high as the Eigenmietwert.
Attention: Indirect amortisation (via Säule 3a) of a mortgage is only possible for real-estate you yourself use and live in. It is not possible for holiday homes or rental apartments.
4. Selling real-estate
In case you profit from the sale of your property, you will have to pay the “Grundstücksgewinnsteuer” (a tax on the profits of a real-estate sale, German huh 😅). Some Kantons even charge you with a speculation tax in case you only owned the property for a short amount of time (don’t forget to check!).
The longer you have owned the real-estate you are selling, the lower the tax. This is tracked and adapted in full years, so it might make sense to sell your house or apartment after another full year is over.
In case you buy a new property out of the profit from the sale of your old one, the tax will only be charged on the difference of sales and purchase price - in case you made profit. 🤓
Hi! I'm Selma – the personal investment assistant! 🖐
Do you own a flat, cottage or other real estate? Tell me about them, they impact how you should invest your money!
Chat with me to see how your investment plan would look like. 😊