The perfect tax tips for our real estate clients

Tax optimization tips for property owners

Deductible maintenance and mortgage costs During the period of ownership, two types of deductions can still be claimed as long as the imputed rental value has not been abolished:

1. the mortgage interest rates actually paid
As you know, these are no longer very high, unless you took out long-term mortgages at high conditions years ago.

2. expenses for maintenance and repairs
Only costs that maintain the value of the property are deductible, not expenses that increase its value. During the period of ownership, these costs can be deducted from income tax. Valuable tip: Keep all receipts such as painting, plumbing or, for example, oven repair bills and submit them with your annual tax return.
In the case of apartments (condominiums), management fees and frequent investments in energy saving (thermal insulation, energy-saving windows, installation of heat pumps, heat recovery, etc.) are also deductible. The payment into the renovation fund is not tax-deductible in all cantons.
While mortgage interest can be deducted according to actual expenditure, the deductibility of building maintenance is regulated differently in the individual cantons. Either a flat-rate amount (10 percent to 25 percent of the imputed rental value) can be deducted from the imputed rental value as a building maintenance lump sum or, if the actual verifiable expenses were higher, the actual costs can be deducted in most cantons. This option is available annually in many cantons (e.g. canton of Zurich with a flat rate of 20 percent), while in others the deduction mode must be selected for a specific term (e.g. five years).

Property taxes

For wealth tax purposes, real estate is only assessed at around 70 percent of its market value. The purchase of a property for CHF 1 million can therefore be expected to result in a tax reduction of around 30 percent or CHF 300,000 of the assets. The taxable assets are reduced by this amount, which results in a (slight) tax reduction. However, homeowners cannot influence wealth tax either positively or negatively. The state sets the key for determining the asset value.

Property taxes

Around 50 percent of the cantons levy an annual property tax on the ownership of private properties. This can be levied either at cantonal or communal level and ranges from 0.3 to 3 per thousand of the official market or tax value, depending on the canton. There are no such taxes in the canton of Zurich.

Indirect amortization

If you pay off your mortgage indirectly via a pillar 3a or 3b, you can save a lot of tax. This is possible because pillar 3a payments can be deducted from taxable income and pillar 3b payments/interest are not subject to income tax, depending on the product.
But be careful: We advise you to separate “saving” and “insuring”. Save via a bank account and insure via an insurance policy! Do not combine these different topics via a 20- to 30-year savings/risk insurance policy! As 3rd pillar contracts usually run until retirement, a change in life circumstances (divorce, house sale) very often results in high costs when the contract is terminated.

Special case of sub-use and use of an office at home

If the children “fly out” and leave the parental home, you can claim “underutilization” for the imputed rental value and deduct the rooms that are no longer needed.
You can also deduct the use of an office room for business purposes from your income tax in many cantons and for federal tax purposes if you regularly work from home. However, this requires certain facts (e.g. that the journey to work takes more than an hour). If you claim this tax deduction, you must waive the deduction of the professional allowance. Instead, you can deduct other professional expenses such as telephone, cleaning, lighting, computer, etc. It is worth taking a look at the tax return instructions.

Tax optimization for property sellers

Property gains tax is often the biggest concern for property sellers. This tax is levied by the cantons and municipalities, but not by the federal government, and represents a very important source of income for the municipalities and cantons.
The profit from the sale of a property is calculated as the difference between the sales price and the purchase price. It is normally possible to add the value-enhancing investments made since the purchase to the acquisition costs. In addition, the state grants a reduction (discount) on the tax rate depending on the holding period. This takes partial account of inflation between the time of purchase and the time of sale. Only in a few cantons is it possible to fully offset inflation against the purchase price.

The most important tips:

Always keep receipts for value-enhancing investments
Collect all receipts of a value-enhancing nature. Depending on the canton, these must be collected for 20 years or more. They can only be deducted when the property is sold.

Check tax systems – dualistic vs. monistic tax systems
The cantons of ZH, BE, UR, SZ, NW, BS, BL, TI and JU apply the monistic tax system. Here, property gains are taxed for private individuals and legal entities. The other cantons use the dualistic system. Here, the property gains of companies (legal entities) are only taxed at the (usually lower) profit tax rate and not at the property gains tax rate as is the case for individuals. In cantons with favorable corporate taxes (e.g. Zug, Schwyz) in particular, it is worth buying/selling properties that are not used privately via legal entities/companies.

Determination of the value 20 years ago in the
Canton of Zurich a major nuisance
In the canton of Zurich, the presumed market value 20 years ago is used as a basis for holding periods of more than 20 years. This leads to major discussions and heated discussions with the tax authorities. Ginesta Immobilien specializes in tax advice for such complex cases. As the only real estate agent for its clients. Thanks to our accumulated market transactions and the tax assessments we have managed over the last 30 years, we are able to negotiate with the tax authorities on an equal footing. As the revenue from property gains tax accounts for up to 30-40 percent of the local financial budget, depending on the municipality, the values proposed by the municipal tax office are usually very low and to the detriment of our clients. The aim is to find a correct and fair solution using the data collected. Tip: What many people don’t know: Alternatively, you can always start from the purchase price if, for example, it was higher 25 years ago than the estimated value 20 years ago.

Early repayment penalties for the termination of a mortgage
For the past 1-2 years, early repayment penalties paid to a bank as a result of the early termination of a mortgage contract can be deducted from property gains tax. Previously, these costs could be deducted from income, but often only up to a certain amount. Be careful with refinancing (e.g. payment of a prepayment penalty with simultaneous conclusion of a new mortgage term): These are still deductible from income tax, limited to a maximum amount at most.

Tax deferral due to replacement purchase
Property gains tax does not have to be paid on owner-occupied residential property if a replacement property is purchased and the profit reinvested. However, the replacement property must be held in the same canton for a certain period of time, otherwise there is a risk of subsequent taxation. If the replacement property is held for at least five years, a gain can be offset against any loss on the replacement property in the canton of Zurich, for example. In addition, the entire period of ownership is taken into account when assessing the holding period. The issue is very complex and it is worth examining each case individually.

Status of “commercial real estate agent” as a tax SURPRISE
Be careful if you build on a plot of land privately and then sell apartments. There is a risk of being classified as a “commercial real estate agent”. In the case of a community of heirs, the case is clearly regulated to the disadvantage of the community of heirs due to a Federal Court ruling. For private individuals, the situation is not entirely clear, unless you make regular developments. In the case of this tax SUPERGAU (biggest misfortune to be assumed), you will still pay federal taxes and AHV after the property gains tax on the property gains. In addition, all your rental income from rental properties will in future be taxed with federal tax and AHV.

Better clarify before you act
If in doubt, obtain a tax ruling from a tax lawyer so that it is clear how the tax authorities will assess a transaction. If you create negative facts, you will no longer be able to conduct positive negotiations. Plan ahead and do not rely on (tax) commissioner chance. Especially in cantons with a strict interpretation of the law (e.g. the canton of Zurich), it is important not to make any mistakes.

Current
The imputed rental value put to the test

This form of income taxation can be found throughout Switzerland for homeowners who live in their house, apartment or vacation property themselves. By living in their own four walls, the owner forgoes potential rental income. However, this rental income would increase the taxable income and thus also the income tax. The state does not voluntarily forego this potential income. It therefore imputes a notional income to the homeowner. According to current federal court practice, this should not be less than 60 percent of a normal market rent. The cantons calculate the imputed rental value very differently. In most cases, the cantons rely on presumed land values and estimated values from the building insurance company to determine the property tax value and imputed rental value.
The imputed rental value increases the taxable income of a homeowner. Despite the deduction possibilities for maintenance costs, this offset cannot be substantially reduced without the deduction of mortgage interest. Older people in particular, who have paid off their mortgages and live on a pension, complain about this tax practice, which results in a considerable increase in their taxable income. Due to the currently very low mortgage interest rates, a home would have to be mortgaged at around 80 to 90 percent of its current value in order to avoid a negative tax effect. However, such high loan-to-value ratios are no longer possible today without additional collateral. The problem has been recognized politically and the National Council and Council of States have already discussed the abolition of the imputed rental value (and the associated elimination of deductions for maintenance and debt interest) on several occasions. Efforts are currently underway again to abolish the imputed rental value. This could have negative consequences for the banks, as more mortgages would then be repaid. However, the black money economy could also flourish again if maintenance costs (tradesmen’s bills) can no longer be deducted for tax purposes. In addition, properties would probably no longer be maintained as well.

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