Owning property affects your tax situation in several areas on account of various events. Taxes and charges are payable when you both buy and sell your home. But taxes are an important issue during the time you own your home as well. It is possible to reduce your tax burden if a number of considerations are taken into account.

Income tax

Owning property affects your income tax in two ways. On the one hand, you must declare the imputed rental value of your home, which is calculated by the tax authorities as hypothetical income. On the other hand, you can deduct your mortgage interest payments and upkeep costs from your taxable income. The treatment of imputed rental value and tax-deductible upkeep costs varies from canton to canton.

Wealth tax

You must declare your residence for wealth tax purposes. This is based on the tax value of your home, not its market value. However, you are permitted to deduct the amount of your mortgage, which may be higher than the tax value.

An example with actual figures
The Egger family lives in the canton of Zurich with two dependent children. The couple has an average taxable income of CHF 110,000 from gainful employment.

The Eggers pay back CHF5,200 each year. In 20 years, they will save a total of CHF 46,914 in taxes* through direct amortization by buying their own home.

* The tax rates vary according to municipality. This calculation takes into account imputed rental value, tax-deductible mortgage interest payments, upkeep costs and amortization as well as the effects on wealth and church taxes. This example is based on the municipality of Adliswil in the canton of Zurich.

By making regular payments into a retirement account (pillar 3a), for example a UBS Fisca account, you benefit from an attractive, tax-free return, thus building up your personal pension. At the same time, you can also deduct the amounts you pay in from your income on your tax return in full. Furthermore, the interest payable on your mortgage remains high, which keeps it tax-deductible in its entirety. This is particularly beneficial if tax progression is high.

To summarize, property owners can cut their tax bills through indirect amortization.

Unlike value-adding investments, value-maintaining renovation and upkeep costs are deductible from income tax. You can claim the actual costs or a flat deduction in your tax return. Careful attention to detail makes it possible to reduce the tax you pay further. For example, you should carry out several smaller renovations in the same year, if the total costs are higher than the flat deduction. Larger-scale renovation work, on the other hand, is better spread over several years, so that you can benefit from the individual deductions. over a longer period of time.

Important: Make sure you retain any receipts for value-adding investments. These costs can be offset against real property gains tax when you sell the property; they are added to the original investment costs. This serves to reduce the capital gain, which has a positive impact on the amount of real property gains tax payable.

The taxable capital gain is calculated as the different between the original investment cost and the sales proceeds realized. Value-adding investments can be added to the initial investment cost. If the sales proceeds are greater than the investment cost, the different is subject to real property gains tax.
Real property gains tax depends on length of ownership. The longer you own a property, the lower the amount of real property gains tax payable. Some cantons calculate using full years, other count in months. So it's worth timing the sale as best you can with this in mind. Real property gains tax is regulated differently from canton to canton, and different tax rates apply. To ascertain the current rates, please contact your local tax authority.

If you invest the proceeds from the sale of a property you inhabited in a new property, you can apply to have the real property gains tax deferred. In this case, although the tax authorities do require real property gains tax to be paid, it is provisionally deferred. The replacement purchase does not have to be made immediately following the sale. There are, however, different periods from canton to canton during which a new home must be purchased if you want to keep the deferral in place. These periods are between one and five years.

Example illustrating the full deferral of real property gains tax, as the entire sales proceeds are re-invested:

So long as you live in the replacement home yourself, the real property gains tax remains deferred. The retention period for both properties is calculated as an aggregate total. Depending on the canton, the deferred real property gains tax is reduced or eliminated altogether (after 20 years in the canton of Zurich, for instance) when you sell the replacement property at a later date.

For more information, get in touch with your UBS advisor.