Tax optimization How can I save taxes with my home?

Home ownership often means paying more tax. Ansgar Gmür, Director of the Homeowners Association, explains how to live with that.

byJürg Zulliger 21 Jul 2016
Ansgar Gmür, Director of the Swiss Homeowners Association, gives tips on taxes and home ownership.

You’re a homeowner yourself, Mr. Gmür. What is your experience with taxes?

Ansgar Gmür: I was affected by the increase in imputed rental value that was introduced in the canton of Zurich a few years ago. I filed a protest and it even went to court.

Did you win?

The tax court decided to reduce the increase by 40 percent. The tax authorities had made mistakes and they wouldn’t accept factual arguments. On the other hand, the court proceedings were fair.

Would other homeowners have a chance if they filed objections?

The assessment is usually made by someone working at a desk, so mistakes happen. A reduction in the imputed rental value is only made in exceptional cases. Some cantons are more flexible with reductions due to underutilization. If rooms are empty, homeowners may be able to claim underutilization.

How would you explain imputed rental value in layman’s terms?

This tax is unique in the world and paradoxical: I pay taxes for being allowed to live in my own house! This taxation is especially unfair when people reduce their mortgage debt before retirement. The deductible mortgage interest is often lower than the taxable imputed rental value. At this stage of life, the imputed rental value can account for up to half a person’s taxable income.

What are the most important deductions?

For properties that are private assets, deductions can be made for interest on debts, maintenance expenses, the costs of repairing newly acquired properties, insurance premiums, and the cost of administration by third parties.

What is higher – the deductions or the imputed rental value?

Depending on the valuation, it is estimated that at least 50 to 80 percent of people have positive real estate accounts. This means that the imputed rental value is higher than the deductions. Today, that situation has become exacerbated in many cases. Because debt interest has fallen, there are also fewer opportunities for making deductions.

Can taxes be optimized when there is major renovation work to be done?

In years with extensive maintenance and major renovations you can claim these expenses against taxable income. Property maintenance or work to secure its value are generally deductible. But improvements are not.

What is considered an improvement?

Things like installing a whirlpool tub instead of a regular bathtub, or adding a new terrace.

Is it possible to make a lump sum deduction for property maintenance?

When major work is required you should deduct the actual costs. It’s advisable to distribute these over several years to reduce progressive taxation. In years with less expenditure you can deduct a lump sum, usually 10 to 20 percent of the imputed rental value.

Do people need a tax advisor?

Many people prefer to avoid filling out their tax returns themselves, and entrust this to a specialist. As an economist even I say: Taxes are so complex, it’s worthwhile seeking professional advice. Especially in connection with real estate and complicated financial circumstances.

Will the tax burden on homeowners continue to rise?

Imputed rental values have risen in recent years, often based on higher market values. Taxes and charges have also risen sharply.

Each canton has its own tax laws …

Taxes are a matter of cantonal sovereignty. This is a consequence of cantonal autonomy in Switzerland and tax competition. The voters have repeatedly voted in favor of this.

What are the most common tax questions?

By a clear margin it’s the imputed rental value, followed by questions about maintenance and improvements, and thirdly the tax handling of energy-saving measures.

Is it worthwhile for tax purposes to pay money into pillar 2 or 3 and withdraw it later to buy a property?

It can be interesting. However, advance withdrawals create gaps in the pension fund for retirement. So it’s important to repay the money into the pension fund or pillar 3 at a later stage. 

The home ownership life cycle

  1. The original condition: Building maintenance is tax deductible. In years with low expenditures, it’s usually possible to claim a lump sum.
  2. After renovation: If major renovations are necessary to maintain the property’s value, the actual costs can be deducted from taxes.
  3. With additions: Anything that is seen as increasing the value of an owned home cannot be claimed for tax purposes (exception: energy measures).

The homeowner expert

Ansgar Gmür has been Director of the Swiss Homeowners Association (HEV) since 2000. The mountain farmer’s son from Amden studied Business and Law. Ansgar Gmür had professional support during the interview from Pavlo Stathakis, the HEV Switzerland lawyer.