Deducting renovation costs from your taxes

Renovating a house or apartment pays off twice over: as well as feeling more at home in your property, you will pay less tax. That’s because maintenance costs for your home can be deducted from your taxes. Which expenses qualify and which don’t?

The cantonal tax authorities distinguish between value-preserving expenses, which are tax deductible, and value-enhancing investments, which are not.

Renovating an old heating system or bathroom is something that needs to be done every few years. This work is necessary to maintain the value of the property. If it is not carried out, the building will lose value or be of limited usability. These kinds of expenses are also referred to as maintenance costs. They reduce the imputed rental value you have to pay tax on.

Value-enhancing expenses are for developments, luxury fittings and extensions, such as a new conservatory. Although these expenses count as investment costs and can reduce the amount of real estate capital gains tax due if you decide to sell the property in the future, they can’t be deducted directly from your taxable income.

However, if you renovate or repair these aspects of your property at a later date, these future expenses will be considered to be preserving its value, at which point you can deduct them from your income tax. There is one important exception: investments that help to save energy and protect the environment can usually be deducted.

You can declare the renovation costs on your annual tax return in the form of a lump sum, or you can specify the actual costs. Choose the option that will enable you to save the most tax. You can decide each year whether the effective or flat-rate deduction is more advantageous. You can specify whether you want to deduct the lump sum or the actual costs for state and federal tax purposes for each individual property.

The amount of the flat rate depends on the age of the building or apartment, and varies from canton to canton. Amounts are indicated in the cantonal guide to tax returns. In most cantons, it is between 10% of the imputed rental value for more recent properties (less than 10 years old) and 20% for older properties. If you opt for the flat-rate deduction, the expenses you claim do not have to be incurred in full and do not have to be documented.

If you want to deduct the actual costs, you must provide specific evidence of your expenses. If the tax authorities are unable to verify the documentation, or if you don’t have all the receipts, they may only allow you to apply a flat-rate deduction.

Older buildings typically require more renovation work. The older the property, the higher the costs incurred, and the more likely it is that the deduction of the actual costs will make more sense than applying the flat rate. With clever planning, more costs can be deducted for tax purposes than are actually incurred.

To do this, group together several deductible maintenance expenses such as regular repairs, each of which is less than the lump sum, and allocate them to “renovation years”. Then deduct the effective costs in that year. In the other years, you can choose to deduct the lump sum.

If your renovation project includes both value-preserving and value-enhancing measures, only the value-preserving proportion can be taken into account for the deduction. If you are converting an existing building, the tax authorities require precise information on the work carried out and on the condition and equipment of the building before and after the conversion. This is to make sure that the work is classified correctly as a value-preserving or value-enhancing expense.

As a house or apartment owner, you can take advantage of tax incentives to make your property more energy-efficient or to invest in renewable energies. The associated expenses can be deducted from direct federal tax, provided that you have not received subsidies for the work. These expenses are also deductible from state and municipal taxes in most cantons.

Although maintenance work doesn’t count as renovation, it can still be deducted. This means that you can deduct anything from elevator maintenance and building insurance premiums to property tax (which is not charged in every canton).

In addition to the cost of materials, deductible expenses also include the cost of tradesmen’s services, such as plumbing or roofing work for the construction of a photovoltaic or thermal solar system on your roof. This does not apply to work you carry out yourself.

Operating costs, such as expenses for heating energy, electricity, water, wastewater and waste charges, are not maintenance costs and are therefore not deductible.

Find out in advance what is recognized in your canton as value-preserving renovation.

UBS can help you with renovation projects and energy-efficient building measures thanks to its “UBS Mortgage Renovation”. This offers particularly attractive interest conditions and an additional interest rate reduction if you can provide proof of a high energy standard or if the energy-efficient renovation accounts for at least half of the total expenditure.

Possibility to deduct energy-efficient investments from your taxes over a period of three years

You don’t have to deduct expenses for energy-saving or environmentally friendly renovation work within one single tax period. Since 2020, it has been possible to spread these expenses over up to three consecutive tax periods. The advantage is that major investments that exceed income in one tax period can now be used to reduce taxes on income in subsequent years.  

Deduction of dismantling costs for energy-efficient replacement constructions

First demolish, then rebuild: if you replace a non-energy-efficient building with an energy-efficient, otherwise equivalent new building on the same plot of land, the dismantling, demolition, removal and disposal costs are tax deductible.

Staggering major renovations

If you are carrying out major renovation work that costs more than the permissible flat-rate deduction, it’s best to spread it over several tax periods. This will take you to a lower tax progression level. To do this, you can have work done in separate renovation phases or across two years. In this case, you must clearly distinguish between the expenses for each year. As a rule, the work needs to be billed in different tax periods. However, the tax authorities often base their decision on the date of payment.

The work carried out and invoices paid must be clearly attributable to one of the two years. If urgent renovations are required in one year, try and postpone any other work until the following year. Major building projects should be planned with a specialist who can advise you on the options for staggering work.

Applicable dates of bills

Some cantons allocate the cost of the renovation to the payment date, while others take the invoice date into account. Other cantons allow both methods or have varying regulations. In order to save taxes, it’s crucial to pay close attention to specific cantonal regulations. Find out in advance how your canton calculates the applicable date.

Always keep nondeductible receipts

Value-enhancing renovations such as loft conversions are not deductible from income tax, but you should still keep these receipts for 20 years. This will ensure that they can be recognized as investment costs if you sell the property later on, at which point they will allow you to reduce the real estate capital gains tax.

Make reserves for foreseeable renovation work

Depending on the amount of work involved, a renovation project can soon add up to tens of thousands of francs. Our tip: plan ahead and budget for future renovation work. If you set aside at least 1 to 1.5% of the building insurance value each year, after 10 years you will be able to renovate your home without having to worry about how to finance the work.

Alternatively or in addition, in certain circumstances you can withdraw pension assets early (2nd and 3rd pillar) or pledge retirement capital to renovate owner-occupied residential property. Depending on the existing loan-to-value ratio on the property, it may also be possible to increase the mortgage for renovation purposes. UBS can help you with renovation projects and energy-efficient building measures with its “UBS Mortgage Renovation”.

Anyone who owns a house or apartment will carry out repair, renovation or conversion work at some point. If you want to save tax on renovation costs, you should obtain detailed information about the deduction options.

Tax savings represent a further incentive for carrying out renovation work that will increase your quality of life. It will be all the more worthwhile if you achieve energy savings at the same time.