How to deduct taxes on a private real estate purchase

Taxes are due when you buy, sell or own a property. To keep track of all that you owe, there are a few important points to consider. In the following article, we explain in detail which costs you can deduct from your taxable income.

When you buy a property, you’ll incur the following charges depending on the canton: property transfer tax, land registry and notary fees.

Property transfer tax is also known as land transfer tax. It is an important tax levied by the respective municipality and affects the purchase price of the property.

In addition, notary fees apply as notarizations are usually part of the purchase process. Land registry fees arise from the registration of the new owner in the land registry. Please note that the exact amounts and regulations may vary depending on the canton.

Owning a property impacts your income tax and wealth tax. Certain costs, such as mortgage interest and maintenance costs, can be offset against income tax. At the same time, the imputed rental value is taxable in the case of owner-occupied residential property and the rental income in the case of investment properties. The value of the property is included in the calculation of wealth tax.

When selling a property, there are also a few things to consider, although again there are differences depending on the canton. You should take into consideration property transfer and property capital gains tax, as well as land registry and notary fees.

Property capital gains tax is due on the difference between the acquisition and investment costs and the sale price. You can find a more detailed overview in the table below.

In addition, in some cases, property transfer taxes may apply, which are paid to the municipality when a property changes owner. The amount of property transfer tax varies depending on the canton.

What taxes and fees should you expect when buying a property? In the table below, we give you a more detailed overview of what you need to know about buying, selling and ownership.

Purchase

If you inherit or are gifted a property, charges will also apply depending on the canton. For one, inheritance and gift tax may apply. Please note that spouses as well as registered partners and direct descendants are exempt from inheritance and gift tax in most cantons. In addition, you should take note of property transfer tax as well as land registry and notary fees.

Various tax deductions are available to you as a property owner. These include the possibility to deduct mortgage interest or indirect repayments into pillar 3a.

In addition, value-preserving renovation and maintenance work can also be deducted. This includes deposits in renovation funds, gardening, repair/replacement of household appliances, painting, bathroom modernization, etc., as well as all ancillary property costs such as building insurance. You can specify a lump sum or effective costs in your tax declaration – whichever is higher.

If you are planning larger renovation work, it is worth spreading construction over several years to split the progressive taxation into several tax periods. The construction work and invoices must in that case be clearly assigned to the respective years.

On the other hand, living and operating costs are not tax-deductible. In other words, what you spend on heating, electricity, wastewater and waste disposal, as well as phone and internet bills.

Investments made to increase value are also not deductible. If you were to install a new sauna or have a sunroom built, your expenses would not be deductible from your taxable income. Only later renovations of the sauna or the sunroom would be deductible. Nevertheless, keep information about value-enhancing investments, as these can lead to a reduction in property gains tax if you later sell the property.

In addition, in most cantons, value-enhancing investments can be deducted if they increase energy efficiency or use renewable energies, such as solar installations or building insulation.

The much-debated imputed rental value

Anyone who lives in a property they own pays tax on what is known as “imputed rental value,” which is determined by the cantonal tax authority. If you have carried out an investment that increases the value of your home, such as a sunroom or an energy-saving renovation, your imputed rental value will be correspondingly higher in your next reassessment.

To lower the imputed rental value, you need a valid reason. This can be evidence that a property is underused, has been reduced in size or if there is a disparity between income and imputed rental value. The practice is not the same in all cantons.

Many voices have for a long time been calling for imputed rental value to be abolished. This is currently being debated in parliament, but nothing has yet been decided. Another topic of discussion is how much tax deductions for debt interest would then be restricted.

Taxes in case of mortgages for purchasing real estate

All forms of debt interest are tax-deductible, whether a mortgage with a bank or other interest-paying loan. Establishing mortgage certificates counts as an investment cost and, like any other expenses for purchasing property or construction work, has a decisive influence on subsequent property capital gains tax.

Amortizations are not tax-deductible if you hold the property as a personal asset. The federal tax authorities in many cantons also do not permit ground rent interest to be deducted from tax. However, you may do so if you rent out the property.

Taxes when buying a house: a good plan pays off

If you live in a property you own, there are many ways to reduce your tax burden. From mortgages and debt interest, energy-saving home renovations to value-preserving measures – all these expenses can be deducted from your tax return. It is important to address property maintenance and taxes in good time. Planning extensive renovations early often pays off. What is important is whether it is more tax-advantageous to split the construction work and thus the costs over several years. The joy of owning your own house is even greater if you prepare well!

If you’re planning to buy a property, you’ll have to reckon with taxes and fees in addition to the purchase cost.

Due to the various taxes such as property transfer tax, land registry and notary fees, as well as the various influences on income and wealth taxes, we recommend that you inform yourself thoroughly and pay attention to the particular situation in your canton. In order to fully understand the tax implications and make the best possible decisions, it can be helpful to seek professional advice.