If we were not talking about so much money, you might compare real estate taxation to some sort of game: sometimes the tax authorities win, and other times you as a taxpayer might win. Among the true winners are those who are planning extensive renovations and investments. Consider the example of the Smith family. They invested CHF 300,000 in a major remodelling project, had the facade renovated and insulated the attic. Instead of sticking with their old heating system, the family decided to convert to an expensive but very modern heat pump with ground probes.
If the Smith family now spreads this work over three years, they can reduce progressive taxation and, depending on their salary situation, be taxed on only a lower income over these years. Or perhaps on none at all: the Smith family can take a full deduction on their tax return for the heat pump, the new insulation and all energy-efficient windows. The reason is that the federal government as well as most cantons want to provide an incentive for efforts towards protecting the environment.
On the losing side?
In many other cases, though, homeowners find themselves among the losers – at least when it comes to finances and taxes. For instance, someone who has paid off their mortgage and cannot deduct interest debit or even a total renovation gets the short end of the stick. Keep in mind that homeowners must pay taxes on their home’s imputed rental value (fictional income in addition to normal earned income), and thus the net tax calculations look worse for them. “In very many cases, specifically for retired people, the imputed rental value is often higher than the deductions”, explains Pavlo Stathakis, an attorney at the Swiss Homeowners Association (HEV).
To avoid any such unpleasant surprises, it is worthwhile to do some detailed financial planning or perhaps even enlist the services of a good tax consultant. Further, even those who would prefer to avoid all the associated paperwork should be sure to take full advantage of the potential to optimise their tax situation.
More deductions than you think
It is important that you carefully save all your receipts and organise your expenses during the entire year. They can add up to quite a large deduction: as a rule, this includes all building maintenance, in other words all work done on sanitary systems as well as plumbing, painting, carpentry and landscaping work. You can also deduct service subscriptions and insurance premiums related to your own home. Depending on the canton, building rights interest and the costs of management by third parties are eligible – pay attention to the information sheets issued by your canton!
Economists from Avenir Suisse have estimated that tax authorities are increasingly tapping owners of houses and condominiums as a cash cow. Because market values and imputed rental values have risen, governments are also taking considerably more: Avenir Suisse estimates that private homes generate more than CHF 9 billion in taxes each year. Read the instructions very carefully!
Apart from the imputed rental value, yet other taxes are often due such as real estate transfer taxes, real estate profit taxes as well as taxes on personal assets including houses and condominiums. This does not even include fees for notaries, land register offices, building authorities, etc. Thus, it is recommended that homeowners read the instructions for preparing their tax returns very carefully keeping this in mind: in the “game” mentioned at the start of this article where taxpayers face off against the tax authorities, everyone should be on a level playing field.