Maintenance and management costs related to your property are fully deductible from taxable income. In a similar way to employees with work-related expenses, private home owners anywhere can choose between a flat-rate deduction and the deduction of effective maintenance costs. It’s an important decision, as there can be a great deal of money involved.

Flat-rate deduction: it all depends on the age of the property

It’s easy to work out whether a flat-rate deduction or the deduction of effective costs is the better option in your situation. The flat-rate option is generally better for newer properties, whereas the actual repair and maintenance costs are often higher on older houses.

The Confederation and most cantons have two categories for flat-rate deductions: 

• For properties under 10 years old, you can deduct 10 percent of rental income or the rental value per year.
• 20 percent a year can be deducted for properties more than 10 years old.

The Cantons of Appenzell Innerrhoden, St. Gallen, Vaud and Zurich apply exceptions (each 20 percent) where the flat-rate deduction of 20 percent on properties under 10 years old can also be claimed on direct federal tax in Zurich. In Vaud, the deduction rate rises to 30 percent from 25 years. Neuchâtel limits the deduction to 7,200 francs (up to 10 years) and 12,000 francs (from 10 years). In Schaffhausen, the flat-rate deductions are set at 15 and 25 percent. The most generous is Basel-Landschaft, with 20 percent (up to 10 years) and 25 percent (over 10 years).

Annual choice between flat-rate and effective costs

You can also opt for the flat-rate deduction for property maintenance if the effective costs in a particular year are lower, or even stand at zero. In years where renovation work costs exceed the flat rate, you can deduct the actual costs incurred from taxable income.

The following types of work are deductible:

• Repair work, e.g. on kitchen or bathroom facilities, electrical installations, decoration and paintwork
• Surfacing, flooring work (including parquet instead of carpet)
• The replacement and repair of heating systems, boilers, washing machines, tumble driers, refrigerators, etc., provided the standard of the new equipment isn’t much higher than before. Basel-Stadt makes a generous exception under which modern luxury equipment is also fully deductible
• For the renovation of kitchens and bathrooms, etc., any proportion of costs adding value is generally excluded
• Renovation work on outside walls and the roof (Eternit instead of paint only two thirds deductible)
• Garden maintenance, but not the initial planting of bushes, trees and flowers (in Basel-Stadt, the garden deduction is limited to 500 francs, while no deduction is permitted in Basel-Landschaft, Ticino and Vaud)
• Basic fees for sewage disposal, waste collection, cleaning, street lighting, etc. (only on rented properties in some cantons)
• Building insurance premiums and property tax

Not deductible: extensions and fees

Value-adding investments and new purchases cannot be deducted. This includes aerial systems, extensions, garages, fireplaces, attic extensions and conservatories. The tax authorities have so far not permitted deductions on conservatories, even based on the energy-saving effect.

Various court rulings have concluded that the gain of additional space takes precedence. Conservatories fall under (value-adding) investment costs in all cantons.

Be aware of higher rental value

Even if you replace a leaky flat room with a pitched roof while adding an extra room at the same time, the tax authorities will view that as an increase in value and refuse a tax deduction. On the other hand, additional rooms and a pitched roof may result in an increase in the official and rental value. Access and connection fees and individual refuse collection, water and electricity charges are also excluded.

Other non-deductible costs include: motoring costs, office rental, construction project, mortgage set-up and property valuation charges. Notarial documents, mortgage certificates, surveying costs, agency commissions and architect’s fees on projects not carried out also cannot be deducted.

With low rental values or high maintenance costs, the deductions can be higher than the rental value. All cantons accept this, but Basel-Stadt, Geneva, Glarus, Neuchâtel and Uri apply restrictive provisions.

To distinguish between maintenance and value-adding investment costs, most cantons have issued factsheets outlining the main deductions.

Tax-privileged: investments with an energy-saving effect

Investments with energy-saving effects receive privileged treatment from the tax authorities. The costs can even be deducted for new purchases that add value. These include windows with better energy performance, heat insulation, heat pumps, solar systems and solar collectors.

However, deductions cannot be applied everywhere on investment in energy-saving or eco-friendly installations shortly after the construction of a new home. The Cantons of Fribourg, Jura, Solothurn, Schwyz and Valais classify this as investment costs in the first five years. St. Gallen applies a two-year limit. Lucerne doesn’t permit deductions for environmental and energy-saving measures at all.

In addition to the actual investment in energy-saving measures, the list of deductible items also includes planning, the use of measuring instruments, scaffolding costs, insurance and fees for architects and engineers.

Although the list is extensive, the tax authorities don’t grant allowances on everything that comes under the umbrella of energy-saving. The following rules apply: 

Energy-saving bulbs

If you permanently fit energy-saving bulbs in interior or external lighting, you can claim a tax deduction, but not for moveable bulbs.

District heating

If you switch to regional heat supply through a district heating system, you can claim for the costs of connecting to the heating network on your tax return. However, the subsequent annual connection charges billed by the power company aren’t deductible. 

Pitched roofs

Replacing a flat roof with a pitched one is also considered an energy-saving measure. However, this investment is only deductible if no additional living space is created as a result. 

Heating oil tank

The costs of installing a tank in the ground in your own cellar can be claimed for. In contrast, upgrading the tank installation and additional costs for a bigger tank are excluded. 

Heating

Alternative, eco-friendly systems, such as heat pumps or systems using solar energy, wood, wind, biogas or geothermal energy, are deductible provided that they aren’t used to heat swimming pools or greenhouses, etc. 

Blinds and shutters

The initial installation is deductible as an energy-saving measure, but not any electrical drive systems required. The latter must be indicated separately on the invoice.

Isulation

The costs of additional layers of insulation in walls, ceilings, under the roof or in flooring can be claimed on your tax return. Some cantons permit allowances for insulation only above a certain thickness. 

Kitchen appliances, washing machines and tumble driers:

Provided the energy consumption of the new system is much lower than before, replacement with more convenient and bigger new equipment is fully deductible. 

Conservatories

Conservatories and glazing for balconies or terraces aren’t allowable, as the gain of living space outweighs the energy savings. 

Distribution and charging stations for e-mobility

These aren’t deductible, because they’re not used for the production or saving of power. However, when selling a property, they can be deducted from capital gains as value-adding costs. This reduces real estate gains tax.

Value-adding expenses are part of investment costs

However, the addition of a new garage, an attic extension or fees and other costs classified as value-adding aren’t without tax benefits: when a property is sold, they can be added to the purchase costs, cutting real estate gains tax. The real estate gains tax is calculated based on the difference between investment costs and the sale price.

However, all receipts for value-adding investments must be presented. These must be submitted to the tax authorities when selling – even if they go back decades. It’s a good idea to put all receipts in a safe place. If they can’t be found, courts have even permitted before/after photos as evidence.

Optimal spread of renovation work for tax purposes

It may be best to spread costs for large renovation projects over two tax periods. This means that deductions can be made in both years, which is favourable under progressive taxation systems.

The date when the work was carried out or when the invoice was received generally apply for tax purposes. The date of billing applies in Basel-Stadt, Solothurn and Thurgau, whereas the date of payment applies in Bern, Fribourg and St. Gallen, which makes tax planning easier. The Canton of Bern expressly excludes down payments.

Costs on energy-saving measures can be spread over a maximum of three tax years, if they are not fully tax-deductible in the year when they were incurred. Costs exceeding net income can be transferred to the following year.

It’s advisable to find out about the details of the regulations beforehand from the canton and then arrange with your construction workers for the work or billing to be carried out in reasonable stages.

Demolition costs are now also deductible

The demolition of a property followed by the immediate construction of a new one can be fully included in investment costs. But no maintenance costs can be claimed. As of 2020, the demolition costs are deductible if the new building is constructed for energy-saving reasons. However, tax deduction is permitted only under certain conditions: the new building must be completed within a reasonable period (usually two years) on the same plot of land with the same type of usage and by the same owner.

In addition to the actual demolition costs, you can also deduct the dismantling of installations and the transport and removal of building waste.

Deductions apply to partial renovation

But what about a complete renovation where a building is partially or fully gutted and all bathrooms and the kitchen are renewed?

In the past, the tax authorities have taxed this kind of renovation as a “new building in financial terms” and consequently classify all investments as value-adding. Their logic is that large-scale renovation projects are the same as new buildings without a significant change of use, which means that tax deductions for replacement investments aren’t permitted.

However, in 2012, the Swiss Federal Supreme Court ruled that whether or not renovations increase the property’s overall value is not an applicable criterion. Instead, “each individual costs item should be assessed separately to determine whether it increases or maintains the property value.”

In recent years, various tax authorities have responded to this by abandoning their previous policy on the replacement of building components. They have since also largely assessed renovations in each individual case to determine whether and to what extent the work carried out maintained the existing building and is allowable for tax purposes.

In view of the complexity of renovation projects, it’s advisable to consult an expert beforehand.

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