For homeowners, it pays off to keep up-to-date records of all maintenance and operating expenses. Almost all owners are aware that they must pay taxes on earnings from rental units as well as on the imputed rental value of their own home, but when it comes to deductions they are often uncertain about the details. Or even worse, they fail to reduce their tax bill because they have forgotten important deductions.
The average Swiss homeowner doesn’t consider it a favourite hobby to devote a Sunday afternoon sorting through a pile of bills from craftsmen, doing the same with miscellaneous receipts and then spending hours studying instructions from the tax office. Even so, those who are well informed can take advantage of a number of opportunities to cut their tax bill. After all, each homeowner must account for the imputed rental value of their abode, which must be fully taxed as income. Thus, it pays off to put «cut your tax bill» high on the list of things to do right at the start of the year.
Cut your tax bill: current issues
«We presently have a large number of enquiries and considerable feedback regarding deductions for building maintenance, in particular for energy conservation measures», notes Katja Stighorst from the Swiss Homeowner’s Association (HEV Schweiz) This aspect of real estate expenses is currently the focus of interest for many homeowners. There is in fact a real wave of investments in Switzerland – you can often see new energy-efficient windows being installed, exterior walls being upgraded with better insulation, or people converting to renewable sources of energy such as solar cells or heat pumps. «The degree to which these investments can be deducted is not uniform from canton to canton», reports Stighorst. Thus, experts at the HEV advise homeowners to consult the instructions and information leaflets from their canton. For Zurich, Bern and some other cantons, you can go to the government website and find a relevant document outlining permissible deductions.
«Most cantons, but not all of them, are generous when it comes to measures for energy conservation and protecting the environment», notes Stighorst. In other words, someone who for instance converts from an older heating system to a new heat pump can reduce their taxes because these outlays can be fully deducted on a tax return. By the way, the HEV hopes that as part of the Energy Strategy 2050 the way such matters are treated as tax deductions will be unified across the country.
Otherwise, the following rule applies: in general, you are entitled to deduct all regularly occurring operating and maintenance expenses such as painting, plastering, wallpapering, plumbing and gardening work. Additional items which are deductible include service contracts for appliances, insurance premiums related to the house, payments for wastewater disposal and street lights along with any management costs for property. All these expenditures can be deducted from your taxable income. On the other hand, investments which increase the value of a property are basically not deductible. So if you install a new sauna (where there was none before), this is considered value-added. Such expenditures, however, can be taken into consideration later when the property is sold (when calculating the real estate profit tax).
Reducing taxable income: flat rate or actual costs?
As a rule, you can either apply the actual costs or you can take a flat rate amount for maintenance as stipulated by your canton; this is generally 10 to 20 per cent of the imputed rental value, depending on the canton and often also on the age of the house. Note, too, that you can make the choice every year, which can bring advantages: in years with costs far above average you should of course apply the actual expenses and not the flat rate.
Keep in mind, as well, that the rate of taxation can differ depending on the type of housing and specific circumstances. The principles just described are also applicable to those who own condominiums; these people can also deduct expenditures for maintenance, repairs and renovations (e.g. painting and wallpapering, replacing floors) in their units. Further, condo owners should also be aware that they of course can also deduct expenses in the condominium association’s renovation fund as well as payments to a property manager and operating costs, etc.
This frequently also applies to multi-unit houses owned privately whereby the owner, for example, resides in one of four apartments in the building. Stated somewhat more simply, in such a case the owner must pay taxes on the imputed rental value of the unit he resides in, and rental income from the other units is considered taxable income. In exchange, the owner who has tax liability can deduct the operating and maintenance costs noted earlier (management fees, building maintenance, repairs). It should also be mentioned that in every case debt interest from mortgages or other interest-bearing loans used for financing the property is fully deductible. Here’s another tip for reducing your tax bill: you can take the amount you save thanks to lower mortgage interest rates and, setting up a type of reserve fund, pay it into your Pillar 3a private retirement savings or, to the extent possible, into your company pension fund. These payments can be fully deductible and later be used for matters related to the property (e.g. amortisation).
Reducing taxable income: underutilisation deductions
According to information from Stighorst, there is a completely different matter to consider, specifically what is called an «underutilisation deduction». This refers to the case when, for example, parents live alone in a large family home after the children have moved out. The fact that there is underutilisation can also arise in other cases (temporary vacancy, rooms not being used following a death, etc.). Based on its experience, the HEV believes that in such cases many homeowners and sometimes even tax accountants think that they should be able to apply for a reduction in the imputed rental value. How this is done also varies by canton. Sometimes the unused room must actually be totally cleared out, whereas in other cases it simply cannot be occupied or be used only to store personal belongings. The underutilisation deduction, however, must generally be reapplied for each year, and this is done best with a well-justified request sent to the responsible authorities. The overall conclusion is this: Due to lower mortgage interest which you can deduct from your income, the tax load for homeowners is tending upwards. It thus is worthwhile to become more familiar with deductible costs.