Real estate gains tax: Taxes are due when selling a house

The sale of a house results in real estate gains tax.

When selling real estate or a plot of land from private property at profit, a special tax, known as real estate gains tax, is applied. How much tax is actually owed on the sale of the house depends on the cantonal tax law as well as the duration of ownership.

The tax on the house sale is calculated based on the real estate gain

A real estate gains tax must always be paid when a plot of land or real estate from private property is sold at a profit. That is, if the sale price is greater than the investment costs. The investment costs essentially consist of the purchase price at that time of purchase and the self-borne value-enhancing investments during the period of ownership. Taxes are collected based on the difference when the property is sold.

Costs directly related to the earlier purchase and current sale of the property can also be claimed to reduce gain. These may include notarial and land registry fees, and typical brokerage fees to third parties up to a certain amount, costs for advertisements, attorneys' fees, or real estate transfer tax paid. This also includes early repayment penalties for early termination of a mortgage on the property. It is important that all expenses can be documented.

It is also worth noting that in certain cantons the real estate gains tax is also levied based on properties in business assets. This applies to those cantons that apply the monistic system of real estate gains taxation.

Taxable net real estate gain

Taxable real estate gain without replacement property

The real estate gains tax is calculated based only on the net gain

The amount of real estate gains tax depends on two factors in principle

The amount of tax owed varies based on certain situational considerations, namely, the taxation of real estate gain in Switzerland is influenced by two factors:

  1. The location of the property and the tax rate applicable there.
  2. The period of ownership of the property.

1. Location: Real estate gains tax is regulated by each canton

The real estate gains tax is collected by the municipality and/or the canton. The amount differs by location because each canton can stipulate how high the applicable tax rate should be. Many places have a progressive scheme for real estate gains tax similar to income tax. This means that the higher the gain, the higher the tax rate that is applied.

2. Period of ownership: Long-term ownership reduces real estate gains tax

At the same time, many cantons provide relief to long-term real estate owners when selling a house. If you own a site or house for many years, you will usually pay significantly less tax when selling than owners who resell real estate just a few years after purchase. For example, in the canton of Zurich, the real estate gains tax is cut in half if a property changes ownership after 20 or more years. Other cantons reduce the tax rates even more significantly after reaching a long period of ownership (e.g. Aargau, Bern, Schwyz, Glarus, Basel-Stadt, Schaffhausen, Ticino, and Thurgau) or exempt the sale of property entirely from real estate gains tax (Geneva).

Conversely, the cantons charge additional tax on real estate gains after a short period of ownership. This means that speculators, in particular, are being asked to pay more.

Real estate gains tax by region and duration of ownership

In the following example, a house was bought for CHF 700,000 and sold for CHF 1 million. The value-enhancing measures amount to CHF 40,000. The deductible transaction costs in connection with the sale amount to CHF 10,000. The result is a net gain of CHF 250,000. The amount of real estate gains tax in selected cities would be as follows:

Real estate gains tax per region After 5 years After 20 years
Aargau CHF 75,000 CHF 25,000
Bern CHF 72,630 CHF 45,686
Geneva CHF 75,000 CHF 25,000
Lausanne CHF 45,000 CHF 22,500
Lugano CHF 65,000 CHF 12,500
Lucerne CHF 52,565 CHF 46,257
St. Gallen
CHF 75,476 CHF 69,815
Zurich CHF 84,930 CHF 44,700

Source: TaxWare

Deferring real estate gains tax

Under certain circumstances, real estate gains tax can be deferred. For example, when deferring in the case of self-occupied properties; if a new property of identical use is purchased within a reasonable period (in many cantons this is two years) after the sale, i.e. a replacement purchase is made.

However, a condition for a complete tax deferral is that all gains are reinvested, in addition to the original investment costs of the property sold. For example, if a single-family dwelling is sold during retirement and a cheaper condominium is purchased instead, the real estate gains tax has to be paid on the realized real estate gains.

If there is a change of ownership within the family, e.g. due to a separation, the real estate gains tax can also be deferred. The same applies in the case of an inheritance, a donation, or an advancement.

However, deferred does not mean canceled out. Because deferred real estate gain reduces the investment costs of the new property. If the property is later sold to a third party and there is no further replacement purchase, the real estate gains tax must be paid on the entire real estate gain, in other words on the gain relating to the current property as well as on the deferred gains of previous properties.

In addition to the cash-flow advantage, the replacement purchase has other advantages. The important period of ownership of the old property can thus be assumed for tax purposes and potential real estate transfer taxes reduced.

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