Tax-saving tips: How will my tax situation change?

Purchasing a property and taking out a mortgage changes your tax situation. What are the tax implications for home owners as opposed to tenants?

Here's what you need to know:

Tax on the imputed rental value

If you own a property, you are required to pay tax on it to both the federal state and the canton. This occurs in the form of what is known as the “imputed rental value”, which is treated as fictitious income on the tax return. The imputed rental value is the income you would theoretically receive if you rented out the property. As a rule, the imputed rental value is between 60 and 70 per cent of the market rent. This value is set by the tax authorities. Once you have received your tax assessment notice, you are advised to check it carefully and dispute it if necessary. You may be able to save yourself a lot of money.

Tax deductions

Mortgage interest: As a mortgage borrower, you can deduct your mortgage interest from your taxable income. Depending on the mortgage amount, this can significantly reduce your tax bill. So purely from a tax perspective, it is advantageous to have as large a mortgage as possible. Just make sure you can still afford the mortgage payments if interest rates rise.

It’s also worth bearing in mind that, although the current climate of low interest rates is a blessing for all home owners, it also means that the tax-deductible interest amounts are smaller. At the moment, there is little scope for saving on taxes.

Maintenance costs: As a home owner, you can deduct the maintenance costs of your property from your taxable income. You can choose whether to deduct a fixed lump sum or the actual costs incurred. The lump sum is usually 10 per cent of the imputed rental value. So make sure you keep receipts for any maintenance work then assess which option is more tax-efficient.

Value-enhancing investments are not tax-deductible, unless they help save energy or protect the environment. It is not always easy to distinguish between investments that add value and those that just maintain it. Many tax offices provide information leaflets that can help you with this.

Direct and indirect amortisation

Lenders usually require you to amortise (pay off) the mortgage until the loan-to-value ratio is reduced to a maximum of 65% of the property's value. This means that within 15 years or by the age of 65 at the latest, you should only have your first mortgage remaining at most and have paid off the second mortgage in full. You can pay the mortgages off using direct or indirect amortisation.

Direct amortisation involves paying off the mortgage in instalments, thereby gradually reducing your debt. This can be a very good idea, but has one major drawback: the mortgage amount becomes smaller – which reduces the amount of mortgage interest that is tax-deductible. Your tax bill therefore keeps increasing. However, as things stand, this is not a huge problem. Interest rates are currently so low that the tax-saving effect of mortgage interest is marginal.

As a rule, only the second mortgage is paid off (e.g. over 15 years or at a rate of 1 per cent of the total mortgage each year). The first mortgage is not generally paid off.

Indirect amortisation can have tax advantages. In this scenario, you pay the money into a pillar 3a account. The assets are bonded in the favour of the bank and thereby serve as an additional guarantee. The assets are paid out on retirement at the latest and have to be used to pay off the mortgage. The advantage is that you can deduct the pillar 3a payment – which will be 6,768 francs for employees with a pension fund this year – from your taxes.

Whether or not you decide to pay off your mortgage depends on your personal situation. You need to consider the following questions: What will you do with the money if you do not pay off the mortgage? Do you want to invest it? Would the return after tax be higher in the long-run than the savings achieved by having a smaller mortgage? Or do you need the money to make consumer purchases? Bear in mind that capital used for amortisation is bound to the property and cannot be used for consumer spending.

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