Real estate and taxes How can I save tax on my property?
Thorough planning gives property owners the chance to save taxes.
Content:
Content:
- Own use vs. renting
- Deductible costs
- How to save taxes when selling property
- Taxes on inheritance and gifts
- To the conclusion
In Switzerland, there are certain taxes that affect all property owners. However, the conditions vary depending on the canton and municipality. Tax issues can be relevant in the following situations:
When it comes to real estate and taxes, a great deal depends on whether the property is for your own use or whether you want to rent it out. The following differences apply:
- Taxes on rented property:
If you own a property and rent it out, the rental income you receive must be declared as income. It will therefore be taken into account in your income taxes. The amount of tax you will have to pay on your rental income depends on your canton of residence and your other income.
- Owner-occupied property:
If you live in the property yourself, you will have to pay taxes such as tax on the imputed rental value. This corresponds to around 60 to 70 percent of the rental costs for a similar property. Property tax may also be due. Certain cantons such as Zurich, Schwyz, Glarus, Zug, Solothurn, Basel-Landschaft and Aargau do not have property tax.
Property tax is a proportional tax based on the value of the property. It amounts to between 0.1 and 3 per thousand of the property value. And finally, there is wealth tax. The property must be declared as an asset on your tax return.
There are various options for claiming tax deductions on owner-occupied properties.
Find out about the different ways for property owners to reduce their taxes, and obtain an overview of the biggest savings factors.
Mortgage interest
You can fully deduct debt interest from your taxable income. The same applies to mortgage interest: the more interest you pay, the less income you will have to pay tax on. This reduces the financial burden of your mortgage.
To benefit from the maximum tax savings, it is important for the amount of the mortgage to be adapted to your personal situation and to the current interest rate environment.
Value-preserving expenditure
Renovation and maintenance costs are deductible from your taxable income if they help maintain the value of your property. Examples include replacing old windows, maintaining the garden or carrying out painting work. Value-enhancing investments such as the installation of a new sauna or whirlpool, on the other hand, are not deductible.
Flat-rate deduction
If only minor maintenance and renovation costs are incurred in the course of the year, you can still deduct a flat rate from your taxable income. Depending on the canton, the deduction for recent properties is 10 percent of the imputed rental value or gross rental income. For older properties, the figure is around 20 percent.
If you spend significant amounts during the same year, it is worth listing your expenses in detail and deducting the actual costs.
Staggering major renovations
If you are planning to carry out major renovation work whose total cost exceeds the flat-rate deduction, you should arrange for it to be spread over several tax periods in order to break the progression. You can achieve this by dividing the work between different renovation phases or having it carried out over more than one year. If work spans several years, it is also important to split it between separate invoices.
Amortization
If you want to save taxes, it’s worth opting for indirect amortization. This is because you can pay the annual amortization amount into your pillar 3a account and deduct deposits up to the specified maximum amount from your taxable income. The amount of the mortgage will remain the same.
If you choose direct amortization, i.e. if you pay off your 2nd mortgage in installments, you can deduct less debt interest each year.
Other possibilities
You can also deduct the following costs from your taxable income:
- Investments to save energy, such as new energy-saving windows or a heat pump heating system.
- All ancillary costs and insurance premiums in connection with the property.
The facts about your preferred municipality
The facts about your preferred municipality
Do you want to understand how property prices or population levels have changed in a municipality? Or how the location is perceived in general? How high are taxes? The UBS municipality guide is free of charge and answers all your questions.
You also have to pay tax when selling property. The main tax due is property gains tax. In simple terms, this is a tax that is payable on the difference between the purchase and the sales price. The difference can be reduced by applying various deductions, such as the cost of any specific investments you have carried out. In many cantons, this tax is progressive. This means that the amount of tax depends on the profit you make on the sale. The holding period also plays a role in calculating tax: the longer you have owned the property, the less tax you will have to pay. But watch out, if you sell your property after a shorter holding period (e.g. within the first five years), you will have to pay a surcharge, which varies depending on the canton.
However, it is worth mentioning that real estate capital gains tax does not always have to be paid immediately, for example if you buy a replacement property within a set period (generally two years) and live in it yourself. However, this is a tax deferral, i.e. the tax must still be paid at a later date.
Real estate is also often passed on as part of an inheritance or as a gift. It will then be subject to gift tax or inheritance tax. The value of the property and the degree of kinship play a major role. The higher the amount of the inherited assets or the gift and the more distant the degree of kinship, the higher the taxes payable by the heirs or recipients. These taxes are generally payable in the canton where the property is located.
Differences in cantonal regulations
Depending on the canton, there are different points to consider in relation to taxes and real estate. To find detailed information on real estate taxes in a particular canton, it is best to visit the website of the relevant cantonal tax authority. These sites often offer comprehensive information and online calculators.
As far as tax is concerned, property owners enjoy certain advantages in Switzerland, but also face a number of challenges. In addition, they can save taxes by opting for indirect amortization via pillar 3a. Early asset transfers and gifts can help break the tax progression. The structure of the mortgage influences the amount of gift tax due.
Whether buying or selling, thorough planning is essential to make sure that property owners can optimize their tax situation.
