The imputed rental value explained

He is the nightmare of every homeowner: the imputed rental value. But what exactly is the imputed rental value and how can it be reduced to save taxes?  We answer your burning questions about the taxation of imputed rental value.

What is the imputed rental value?

Those who live in their own occupied property in Switzerland must tax the so-called imputed rental value as income. The imputed rental value is not an actually earned income, but rather a fictitious amount derived from the theoretical rental value of a property. Typically, the imputed rental value amounts to 60 to 70 percent of the amount that a third party would have to pay as rent for a residential property.

Why is the imputed rental value taxed?

Taxation of imputed rental value was introduced provisionally in 1934 after the global economic crisis as a levy to restore the federal budget and was adopted into regular law in 1958. It is a manifestation of the solidarity principle of the Swiss tax system. Although the owner of a property does not receive rent, he earns a yield by occupying it himself. Because he does not have to pay rent, he has a saving in the amount of the hypothetical rental value of the property. This saving must be taxed as income.

How is the imputed rental value calculated?

As is customary in the Swiss tax landscape, the imputed rental value is determined at the cantonal level. The responsible cantonal tax authority estimates the rental value of a property based on living area, year of construction, type of construction, location, and value of comparable properties. Due to the varying calculation methods in different cantons, it may happen that identical properties in different cantons are taxed differently. According to the Federal Court, however, the imputed rental value must be at least 60 percent of the value that could be achieved on the free market as rent.

How can you save on the taxation of imputed rental value?

Property owners can reduce the taxation of the imputed rental value through deductions. In addition to mortgage interest, the so-called value-preserving costs are particularly deductible. These include renovation and repair costs as well as the replacement of electrical appliances or property insurance premiums. Value-increasing investments are not eligible for deduction. Such investments include all those expenses and improvements that go beyond maintenance of value. Thus, while a homeowner can deduct the costs for an ordinary bathroom renovation, expenses for a luxury bath with a golden toilet do not qualify for a tax reduction. However, there is an exception to this basic rule. Under certain conditions, value-increasing investments are deductible if they serve to protect the environment or save energy.

Findea helps you to keep track of the financial situation of your company at all times.