When you own your own home, your tax return becomes more extensive, but your tax contribution is not necessarily higher. In this article you will learn what the imputed rental value is and which expenses can be deducted on your tax return.
As a homeowner, you have several options for optimizing your tax burden. The terms imputed rental value, maintenance costs and debt interest don’t mean anything to you yet? Then it’s high time to familiarize yourself with the tax deductions available in relation to your home. We provide an overview of the biggest savings factors here.
Anyone who occupies their own property in Switzerland must pay tax on the “imputed rental value”, also known as the “rental value of owner-occupied property”. This is a tax on notional income – i.e. an estimated rental income that the owner would receive if the property were rented.
Since property owners live in their own home, they don’t receive any rental income, but they do earn income in kind which is equivalent to the amount of rental costs they save. The imputed rental value varies from canton to canton – generally speaking, it is about 60 to 70 percent of the amount that a tenant would have to pay in annual rent for the residential property in question.
This fictitious income, like actual income from rental property, is subject to income tax and must be declared accordingly. At the end of the year, on the other hand, a whole range of tax deductions can be claimed, which will be discussed in detail later in this article.
Below is a list of items with more detailed explanations of the associated deductions that homeowners can claim on their tax returns.
Regardless of the debt, interest can be deducted on your tax return – this applies to mortgage debt as well as private loans from family members or credit card debt. The following rule must be observed: mortgage and other debt interest corresponding to the value of taxable property income, plus an additional CHF 50,000, may be deducted from your taxable income.
If you are amortizing your mortgage, a distinction must be made as to whether the payments are direct or indirect. Indirect amortization payments to a pillar 3a account are deductible, while direct amortization payments are not.
Investments aimed at improving the energy efficiency of residential property and thus contributing to environmental protection are generally deductible. Examples include measures such as installing a photovoltaic or solar thermal system on the roof, fitting a more environmentally friendly heating system or insulating the house facade.
To determine whether renovation and maintenance costs are tax-deductible, the crucial factor is whether or not they allow the homeowner to increase or simply to maintain the value of their property. The property would lose value without this work and, in the worst-case scenario, could even become uninhabitable.
For tax purposes, measures taken to preserve property value are part of property maintenance and are therefore deductible from income. Here is a list of possible measures:
However, financial expenses that result in an increase in value (such as a new garage, a fireplace or an attic conversion) cannot be claimed as tax deductions. But more on that below.
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Here are some examples of items that cannot be deducted from your taxes.
Wondering whether you can turn the bathroom into a luxurious wellness oasis and then claim the whole thing back on your tax return? Since this is a value-enhancing investment, it’s not eligible. The same applies to additions and conversions such as building a garage or converting the attic, for example.
In some cases, it is not immediately obvious whether a measure is value-preserving or value-enhancing. For example, if you replace your old oven with a high-quality steamer oven as part of a kitchen renovation, the cost probably won’t be deductible – but fitting structurally identical cabinets and countertops of the same value as before will be. If in doubt, it’s advisable to submit the project to the tax authorities of your municipality of residence and obtain confirmation of which costs can be deducted from your income.
Tip: even if value-enhancing investments can’t be taken into account for income tax purposes: keep the receipts for these financial expenses for 20 years, as they can be deducted on any real estate capital gains tax.
Financial expenses incurred as living costs do not qualify for tax deductions. Examples include the cost of heating oil, electricity, water, wastewater, telephone, cable connections and the Internet.
When homeowners fill in their tax return, there are two different options for deducting expenses.
If they only expect to make small deductions, homeowners can opt for a flat-rate deduction. In most cantons, this corresponds to between ten and 20 percent of the imputed rental value. In this case, evidence of any maintenance or renovation measures is not required.
If the measures carried out on the property exceed the flat rate, homeowners should consider choosing the effective deduction. Here, a detailed list of all the costs is submitted to the tax authorities, stating the date, service, recipient and amount, with the relevant receipts as proof. If inconsistencies arise at the end of the day, the tax administration will request further evidence. If the worst comes to the worst, you can still deduct the flat rate amount.
When homeowners fill in their annual tax return, they should be well prepared because there are a number of ways to optimize taxes. Debt interest, a new photovoltaic system and value-preserving measures such as repairing windows are among them. On the other hand, value-enhancing measures and operating costs are excluded.
Tip: it’s important to plan extensive renovations and refurbishments with foresight and to clarify in advance whether it is more advantageous from a tax perspective to spread the costs over several years.
