Tax tips for home owners Renovations reduce taxes

The benefits of renovating your house are two-fold: The costs of maintaining your own home are tax deductible.

by Hanspeter Baumann 06 Jun 2018

Value-conserving expenditures are deductible

Replacing an out-of-date heating system or renovating the kitchen – expenditures that conserve value, also sometimes called “upkeep”, can be deducted from taxes. Value-adding expenditures, such as a newly attached solarium, cannot be deducted from taxable income, although they do contribute to reducing the tax on profits from real estate when you later sell the house. Many cantons set out in factsheets what they consider to be value conserving. There is one important exception: investments that help save energy are also generally deductible.

Clever use of the lump-sum deduction

Depending on the tax period and property, you can choose between the effective and lump-sum maintenance deduction. Clever planning can save on taxes: Try to group several maintenance outlays together in “renovation years.” In other years, you can claim the respective lump-sum deduction.

Stagger major renovations

Larger renovations that can scheduled over time and cost more than the standard deduction should be distributed across several tax periods. This can be done by spreading out renovations across separate renovation phases or carrying them out over multiple years. In the last case, the expenditures from the old and the new year should be clearly defined and accounted for separately. Should there be urgently necessary renovations in one year, you should postpone other renovations to another year.

Time reference of bills

There are cantons that assign expenditures to the payment date, and others that assign expenditures to the invoice date. Still other cantons allow for both methods or have differentiated rules. To save on taxes, carefully observing cantonal peculiarities is absolutely crucial.

Further recommendations

  • When in doubt, enclose the documentation supporting your tax declaration and claim the deduction. A decision will be reached in the assessment procedure as to whether the measure was value conserving or value adding.
  • “Before and after photographs” confirming that the project was a “renovation” and not an “addition” can help in the case of major renovation projects.
  • In the case of comprehensive renovations, it also helps to ask the architects to provide an invoice of construction costs that indicates the share of the work that was value conserving.
  • Often forgotten in the declaration are costs such as building insurance premiums, chimney-sweep bills and the service subscription for heating.

Hanspeter Baumann

Hanspeter Baumann, licensed fiduciary expert and partner at the Swiss audit, accounting and consulting firm BDO, sums up the most important aspects in a nutshell and compiled these tax tips.