If you own an apartment or a house, you should keep your running costs and finances in order. When completing the annual tax return, homeowners can do a lot right. Or wrong – if they do not utilize the deductions.
Home owners tax their intrinsic rental value in Switzerland. In tax terms, this often looks unfavorable: The intrinsic rental value increases the taxable income. Intrinsic rental values have tended to increase in recent years. At the same time, the tax deductions have decreased due to low interest rates. The Council of States’s attempt to abolish the intrinsic rental value has made big waves. But beware: Until further notice, the previous rule applies. Drafting revised laws, hearings and possibly a referendum may take years. Regulations 2022 or 2023 probably will not change. Therefore, do not forget any deductions:
First: Maintenance work, utilities
In addition to the effectively paid mortgage interest rates, you can deduct various maintenance costs. These generally include:
- Painting, plumbing, carpenter, tinsmith, gardener or new flooring
- Repair and equivalent replacement of eqipment, systems, installations
- Current ancillary costs, such as premiums for building insurance (liability, fire) or service subscriptions for washing machine, heating, tumble dryer, etc.
- Chimney sweep expenses
- Repairs of paths, fences and garden walls
- Polishing parquet flooring and other repairs
Do you want to renovate the kitchen or the bathroom? The expenses are usually deductible. In any case, consult your canton‘s guidelines and leaflets. Generally applicable is: Renovations and normal building maintenance are considered owner’s costs and may be deducted from taxable income. On the other hand, expenses that increase the value are not deductible: for example, a winter garden (if you have not had one before). Turning an old kitchen into a new one with a virtual luxurious standard would only be part of a tax deduction. Similar to a fireplace: You must not deduct the first installation, but you may claim fireplace repair and equivalent replacement. Not deductible are expenses that are simply part of living and operating costs. This includes energy, i.e. purchase of electricity, gas or heating oil. Also water and waste water costs, the television and telephone bill etc. may not be claimed for tax purposes. What do condominium owners have to consider? Essentially, the same principles apply to condominiums: As a condominium owner, you also deduct the mortgage interest and the maintenance of your own home. Furthermore, the usual administrative costs as well as contributions to the condominium owners‘ renewal fund are deductible, as long as these deposits serve the maintenance and repair of the building (but not the value increase).
Second: Save energy and reduce taxes
Most cantons stipulate that you, as homeowner, can deduct monument-protecting measures (mostly regardless of whether they preserve or increase their value). Especially important: Many people want to convert their buildings and rely on renewable energies (photovoltaic, solar or geothermal, heat pumps). Or they install better energy-saving windows and renovate the façade – often with the result that energy consumption falls. With all these investments, authorities are very generous: You can deduct from taxes anything that contributes to environmental protection and energy efficiency. If you have an old gas or oil heater from the 1970s, a conversion will also be worthwhile for tax purposes. Installing a heat pump with renewable energy can be a fully deducted tax – usually even if this investment is more expensive than the mere replacement by a comparable investment (value preservation or increase in value does not matter).
Third: Lump sum deductions
In all cantons, you have the choice of deducting either your actual expenses or a lump sum. As a lump sum you are usually allowed to deduct 10 or 20 percent of your intrinsic rental value without having to submit any supporting documents. In years with fewer expenses, of course, most owners will claim the lump sum. If you want to beautify and rebuild your home, you should consider distributing the project over several tax years. This makes it possible for you to split the tax progression and ultimately pay fewer taxes.
Fourth: Intrinsic rental value and underutilization
Intrinsic rental values are usually determined according to largely automated and standardized procedures. It is quite possible that your property will be overestimated. Depending on the canton, the intrinsic rental values should be between 60 and 70 percent of the market values, but sometimes between 60 and 100 percent. In well-founded cases, objections have a chance of success. Whatever you are entitled to, most cantons know the term “underuse.” When a spouse dies or when children move out, many houses are left with empty rooms. In many cantons and also with the federal tax, this enables a reduction of the intrinsic rental value. However, the practice is relatively strict: Often authorities accept deduction of property only if the rooms are really permanently uninhabited.
Fifth: Amortization & mortgage
Compared to direct repayment to the bank, so-called indirect amortization offers an attractive alternative. With this variant, the mortgage amount remains unchanged. This means the interest on debt can be tax deducted in the same amount as before. This pays off, especially in higher income groups or high tax progression. The bank does not require amortization, but money must be paid into an account or deposit under column 3a. The capital thus saved is pledged in favor of the bank and serves as additional security. At the retirement date at the latest, the capital in column 3a will be paid out and then used to repay the mortgage. In addition, contributions to column 3a are tax deductible. Together with the deductible interest, this results in a double tax effect. As a rule of thumb: A very extensive or even complete amortization of the mortgage is not worthwhile for tax purposes. This is especially true for homeowners in a higher tax progression.