Paying property taxes right: How you can save on taxes
Every owner has to pay taxes on their property. If you plan ahead, there are various tax deductions for owner-occupied homes. Find out what taxes are placed on properties and how you as a home owner can save money on taxes.
Property taxes: Wealth tax
Real estate is considered a taxable asset, so taxes must be paid on it. What matters here is the taxable value, which is calculated differently depending on which canton you live in. This is typically based on the market value. Mortgage debt reduces your taxable assets, which can thus mean a lower tax burden.
Some cantons and municipalities also have a real estate tax (also known as immovable property tax). The full taxable value of the property must generally be specified for this. There is no tax deduction for mortgage debt under this tax.
Indirect repayment allows for larger tax deductions on owner-occupied homes
One way to save on taxes is through indirect repayment on a property you use yourself. Instead of repaying the mortgage directly, you pay the repayment amount due into your tied pension provision. The mortgage is thus not repaid until the agreed term has ended, or at the latest when you reach retirement age.
This is appealing from a tax point of view since all mortgage debt can continue to be deducted from your taxable assets during the indirect repayment period. The amount you pay into tied pension provision also reduces your taxable income. Taxes for this are not due until withdrawal, i.e. when the mortgage is repaid. However, this amount is then taxed separately from your remaining income at a lower rate.
Property taxes: Imputed rental value
Properties are taxed not just as assets in Switzerland. Income tax is collected on real estate using the imputed rental value. The imputed rental value is imaginary taxable income and is meant to level the field for tenants and home owners.
There are also opportunities to save on taxes with the imputed rental value. Owners can deduct mortgage interest, maintenance costs, and insurance premiums for their properties from their taxable income. Condominium owners can also claim administration costs as well as payments to the renovation fund. It is important to note that evidence of the tax deductions must be provided in full for owner-occupied homes. A standardized deduction can be claimed instead of the actual maintenance costs.
Tax deduction for owner-occupied home renovations
Renovations are particularly interesting from a tax perspective, although it makes sense to plan your spending carefully. After all, each tax deduction can be claimed only in the calendar year in which the costs were incurred. If you stagger work in your home and spread it out over multiple years, you will enjoy a tax benefit over a longer period of time. This type of staggering is particularly interesting if it allows you to break the tax progression, which makes your tax rate disproportionately higher the more you earn. You thus save more taxes if you make the investment in stages instead of all at once.
Only value-maintaining expenses are deductible, however. For instance, adding a new whirlpool is not, as this causes the value of your home to increase. An exception is made for investments to increase energy efficiency. This means you can claim a tax deduction for a solar panel even if it caused the value of your home to increase. Expenses that increase value have tax relevance when the property is sold – they reduce the real estate gains tax.