Various Tax Benefits Related to Real Estate Purchase

Imputed Rental Value

Owners must declare an imputed rental value as income; this value is based on the rent that the owners would earn if they rented out their property. It is determined at cantonal level, applies to homeowners or condominium owners and ranges between 60% and 70% of the average market rent. However, this rental value can be offset by various tax deductions, such as mortgage interest and maintenance costs. This provision makes it possible to reduce the tax impact of the imputed rental value by taking into account the owner's actual expenses for maintaining and financing the property.

Deduction of Mortgage Interest 

Mortgage interest is one of the most significant tax deductions for homeowners. Interest paid on mortgage loans can be deducted from income tax. This deduction is particularly beneficial for owners with large mortgages, as it can significantly reduce the amount of taxes to be paid each year. By combining this deduction with other tax benefits, homeowners can substantially optimize their tax situation.

Tax advantages of pledging

Instead of withdrawing your second-pillar assets, you can also pledge them to the bank as equity capital. This amount is then used as collateral. In return, the bank will grant a higher mortgage loan of up to 90% or 100% of the amount pledged. You will therefore only have to contribute a maximum of 10% of liquid equity. Apart from the reduced down payment, and given that the pledge can be used to buy into a pension fund for a limited period, the tax savings can be very attractive.

Indirect Amortisation (via the 3rd Pillar)

This is one of the most effective ways for a homeowner to benefit from tax advantages. This method allows meeting the bank's amortisation requirements while enjoying tax deductions related to the 3rd pillar. The pillar 3a (as well as the pillar 3b in FR and GE) is a tax-deductible retirement savings form which, if invested, can help grow the saved capital. For 3a contributions, these are capped annually at CHF 7’056.- (status 2024) per person affiliated to the BVG/LPP and CHF 35’280.- (status 2024) per person not affiliated to the BVG/LPP, while the deductible amount in pillar 3b mainly depends on your family situation.

Deductions for Maintenance and Renovation Work

Each year, homeowners have the choice of deducting the actual or flat-rate amount of the work carried out. The flat-rate amount is a percentage of the rental income or the imputed rental value that owners can deduct without providing proof. As a rule, the lump sum is more worthwhile for newer properties, whereas the actual repair and maintenance costs are often higher for older houses. The amount varies from canton to canton. The Confederation and most cantons recognise two categories of flat-rate deductions: 10% of the rental value for properties less than 10 years old and 20% for older properties. The other method, the so-called actual deduction, makes it possible to deduct insurance and taxes as well as the actual costs of maintenance and renovation work. Note: Owners of rented properties can also deduct management costs, advertising costs for renting out the property and legal and administrative costs. Maintenance work includes necessary expenses to keep the property in good condition, such as facade, roof, plumbing and electrical repairs, chimney sweeping or garden maintenance. Expenditure on value-enhancing work that improves the condition of the house or flat is not deductible. This applies, for example, to a fireplace in the living room, a converted attic, a conservatory or an extension that increases the living space.

Ecological Advantages

Investments aimed at improving the energy efficiency of a property often benefit from additional tax deductions. For this purpose, it is advisable to contact your tax administration to know the benefits granted in your canton, or even in your municipality. Homeowners can thus deduct costs related to the installation of solar panels, the replacement of windows with high-efficiency models, or the installation of environmentally friendly heating systems. These initiatives not only reduce long-term energy costs but also offer significant tax advantages encouraged by the Confederation to promote sustainability.

Conclusion

Investing in a property offers numerous tax advantages. The deductions mentioned in this blog article show how much owners can reduce their overall tax burden, resulting in important long-term savings. In addition, by maintaining or improving their property, owners can not only achieve significant tax savings, but also benefit from a potential increase in value on subsequent resale.

However, it is key to note that tax deductions can vary from canton to canton. Thus, you should inform yourself about the local regulations in order to optimise your savings. With the support of a competent financing expert like at Resolve, you can navigate the complex tax regulations with peace of mind and take full advantage of your property investment.