Those who own houses and condominiums are well advised to do in-depth financial and tax planning. After all, the imputed rental value along with taxes on your income and assets can significantly strain your budget. The following tips will help you when filling out your next tax return.
The vast majority of us do not derive a great deal of enjoyment from collecting receipts, invoices from tradesmen, bank statements and salary statements. Dealing with this paperwork, however, is unavoidable when this year it is once again time to fill out your annual tax return.
Filing taxes in 2015 – what’s new?
This year is introducing a few new items to keep in mind. For example, when setting the imputed rental value of residential property, the Canton of Grisons is switching to a somewhat more relaxed method. According to a Federal Court ruling, the cantons can reduce the imputed rental value down to as low as 60 per cent of a property’s actual market value. From this year, the tax authorities in Grisons are reducing the imputed rental value to a target amount from 70 per cent now to 60 per cent. The method the various cantons use varies considerably. Other cantons such as St. Gallen orient this amount closer to the market value.
The imputed rental value of a house or condominium is calculated as hypothetical income to the taxpayer, which of course increases the overall tax burden. This type of taxation often has a major impact, especially for those who are retired.
A change in the Canton of Bern, as well
A related change went into effect in the Canton of Bern in 2015. While other cantons such as Zurich have eliminated the real estate transfer tax, it is being only partially eliminated in the Canton of Bern. From 1 January, the acquisition of owner-occupied residential property is tax free up to a purchase price of CHF 800,000. In a number of cantons there are changes and special regulations, for instance as regards what are known as «hardship cases» (where there is a wide disparity between income and the taxable imputed rental value). In each case, it pays to get information in advance as to what is applicable in your canton, especially when dealing with imputed rental value and allowable deductions for owners of houses and condominiums.
Reduce your taxes – but how?
Because there could well be a trend towards interest payments on mortgages further dropping during 2015, this could possibly increase your tax burden. Specifically, as a homeowner and taxpayer, you can deduct correspondingly less debt interest while, however, the imputed rental value has tended to increase in the last few years. «We estimate that because of this situation, tax revenues will increase by the billions», according to Pavlo Stathakis from the Swiss Homeowner’s Association (HEV Schweiz).
Thus, the applicable rule is to do an in-depth study of the instructions for filling out your tax return and take full advantage of any possible deductions. For homeowners, in addition to debt interest, they can benefit primarily from building maintenance. Work done by plumbers, painters, cabinetmakers or gardeners and other expenses for maintaining and upkeep are fully deductible. In addition, service subscriptions and insurance premiums related to your own home can be deducted, and depending on the canton this is also true for ground rent and the costs of building management done by others.
Non-deductible items, on the other hand, are expenses which count towards the normal cost of living and operating costs – thus, for instance, the use of power, i.e. the purchase of electricity, gas or heating oil. In addition, water and sewer fees, television and telephone bills, etc. may not be deducted from income. As a rule, you have the opportunity once each year to decide if you would like to provide receipts for actual outlays and deduct them or take the standard deduction. Depending on the canton, you are permitted to deduct a flat fee ranging from 10 to 20 per cent of the imputed rental value. In years with relatively low outlays or renovations, the flat fee of course makes more sense.
Homeowners: reduce your taxes with deductions
In years involving major work, renovations, investments or alterations, you do better if you itemise these costs and deduct them on your tax return. If major projects are being planned – such as renovations worth tens of thousands of francs – it might make sense to divide the work among two tax years. «By doing so, it is possible to move away from the progressive tax and reduce your tax burden overall», explains Stathakis. Renovations necessary to maintain the value of the property or replacing old structures and equipment with those of equivalent value are basically fully deductible. A special rule applies to measures in the areas of environmental protection and energy conservation: investments in photovoltaic systems, a heat pump or new energy-saving windows are fully deductible in most cantons and on Federal taxes. This applies even if you are dealing with investments which fundamentally improve home value. Thus, if you replace an old oil-fired heating system with an expensive heat pump with geothermal probes, these investments can be 100 per cent deducted.
In contrast, items which increase asset value but have no effect on energy conservation are non-deductible – for instance if you replace an old bathroom with a truly large «wellness zone» or build a swimming pool in your garden where previously there was only an English lawn.
Just as they do with interest debt, condominium owners can deduct maintenance to their own unit. Furthermore, condo owners can deduct standard management fees as well as contributions to renovation funds to the extent these investments are used for the upkeep and maintenance of the building itself (and do not increase the asset value).
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