Mortgage and tax return: when can I claim deductions?

1. Mortgage and taxes: what do I need to know?

Imputed rental value explained

If you own a home, you are required to pay tax on your property at both the federal and cantonal level. The key factor here is the imputed rental value. On your tax return, the imputed rental value is treated as fictitious income. It is based on how much money you would receive if you rented out your property.

Tax on the imputed rental value

The tax authorities determine the imputed rental value in a tax assessment notice. Once you have received your tax assessment notice, you are advised to check the estimate carefully and file an appeal if necessary.

You may be able to save money. This is because the imputed rental value increases your taxable income. Conversely, with a lower imputed rental value your tax burden is also less.

2. How can I save tax with my mortgage?

If you have taken out a mortgage to finance your home, certain elements of the mortgage can be written off your taxes. Here's how it works:

Deduct mortgage interest from taxable income

You can deduct the interest on your mortgage debt from your taxable income. Depending on the mortgage amount, this can cut your tax bill considerably. From a tax perspective, it therefore makes sense to have a mortgage that is as high as possible. A bigger mortgage means higher interest payments and therefore greater tax deductions.

Important: make sure you can afford the mortgage payments. As a rule, to meet affordability and loan-to-value ratio criteria, you need a deposit of at least 20%. Your annual housing costs may not exceed a third of your gross income.

Value-preserving upkeep

Maintenance costs increase your mortgage-related tax deduction. As a homeowner, you can deduct value-preserving renovations from your taxable income. You can choose whether to deduct a fixed lump sum or the actual costs incurred. You can find more on this topic in this article: Which renovations are tax-deductible?

Deducting mortgage repayments from tax

Lenders normally require borrowers to repay the second tranche of their mortgage. This repayment, also known as amortization, is designed to reduce the loan-to-value ratio to a maximum of two-thirds of the property's value within 15 years at the latest. This repayment can be direct or indirect.

The type of amortization you choose will affect your tax bill. If you choose direct amortization, your tax burden will keep increasing. With indirect amortization, you can deduct more mortgage debt from your taxable income for longer. You can read more about this here: Amortization

3. Where on my tax return do I deduct mortgage interest?

State your mortgage interest costs on your tax return by entering the debt interest paid in the schedule of debts. Things are a little more complicated when it comes to value-preserving renovations. Here you have two options:

• You can deduct the costs for upkeep as a lump sum. You do not need to submitreceipts and invoices for the renovations.

• The alternative is to submit all of the receipts for your renovation work with your tax return. The general rule is that if actual renovation costs exceed the lump-sum allowance, you save tax. You should therefore keep all receipts.

Comparis tip: spread the value-preserving renovations over several years. In this way, you break the tax progression and pay less tax overall at this stage with the same income.