Abolishing the imputed rental value: what eliminating it could look like

A good chance that imputed rental value will be abolished

Many people consider the imputed rental value on owner-occupied homes to be unfair. That is one of the reasons the Federal Assembly would like to abolish it. What might the change to the tax code look like, exactly, and what tax deductions would likely be eliminated as a result?

Imputed rental value on primary place of residence soon to be eliminated

There is definitely a good chance that the imputed rental value will be abolished. Of course, there have been attempts to revamp the system in the past. That is because this theoretical income, which homeowners are required to pay taxes on, is a thorn in the side of many. Yet, previous tries have failed due to conflicting interests. With the latest attempt, however, it might actually be possible to reach a compromise that all parties involved can agree to.

The Committee for Economic Affairs of the Council of States published draft legislation in April. It would like to abolish the imputed rental value on owner-occupied residential properties used as a primary residence. The taxable value would remain in place on second homes. In turn, the proposal also intends to eliminate the ability of homeowners to deduct maintenance costs for owner-occupied residential properties (first homes) from their taxes. The Committee also wants to do away with energy savings credits and environmental credits – at least at the federal level. The cantons themselves could continue to allow such deductions.

Impact of abolishing imputed rental value on debt interest tax relief

It is still unclear what will happen to the current debt interest tax relief under the new system. At the moment, homeowners are allowed to deduct the debt interest on their mortgage from their taxes to offset the imputed rental value. However, that is an incentive not to pay off one's debt and yet another reason for the high amount of mortgage debt held by Swiss households.

That is expected to change under the new system. However, the Economic Affairs Committee of the Council of States can envision some exceptions. At the current stage of consultation on the draft, five proposals for deducting debt interest are being discussed. In any event, first-time buyers of residential properties should continue to enjoy the option of taking a deduction. The latest proposal envisions allowing new property owners to deduct up to a maximum of CHF 10,000 for married couples and a maximum of CHF 5,000 for unmarried individuals for the first ten years, with the amount of the deduction declining in linear fashion with each year.

A majority needs to want to eliminate imputed rental value

Consultations on the draft law will continue until July 12, 2019. However, the system is not expected to change before 2021 at the earliest. It is crucial that associations of both landlords and homeowners back the final legislation. Otherwise, there is a risk that the issue will be put to a referendum and thus a popular ballot with the outcome uncertain. Abolishment of the imputed rental value really only stands a chance if the majority feels that the draft law is fair.

Timeline for abolishing imputed rental value

Possible timeline for tax code change

Estimates based on available information.
Source: Credit Suisse; last data point: 05/2019

Do you want to know what consequences the new system would have for you?

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