Delineation between maintenance costs and value-enhancing expenditures

Maintenance costs for private property real estate are tax-deductible. However, they must have a value-preserving character and maintain, repair, or replace the specific utility value of an economic good in a property. Expenses that increase the value cannot be deducted as maintenance costs, but only for property gain taxes.

For properties held as private assets, maintenance costs, the costs of repairing newly acquired properties, insurance premiums, and the costs of administration by third parties can be deducted from the taxable income. On the other hand, other costs and expenses, particularly expenses for the maintenance of the taxable person or their family, and expenses for the acquisition, production, or enhancement of assets, are all non-deductible.

On October 24, 2017, the Federal Court assessed a case where this distinction was disputed. In 2013, a couple from the canton of Zurich equipped their property with a marten grille and deducted the resulting costs of CHF 11,769 as maintenance costs from their taxable income. The Zurich authorities did not accept this, so the case went to the Administrative Court of the Canton of Zurich. This court protected the couple's view, as it found that the marten grilles should prevent future damage, which is a measure to preserve value and therefore to be classified as deductible maintenance costs from taxable income. The Zurich tax office appealed the case to the Federal Court. This contradicted the Administrative Court of Zurich. It also emphasized that only value-preserving measures can count as maintenance costs and that value-enhancing expenses would create additional, new values. In this case, however, the marten grille had only been installed to prevent a not yet occurred, possibly impending damage. The occurrence of damage was neither immediate nor concretely threatening. Lightning rods, firewalls, or fire alarms would also not be recognized as maintenance costs since they would only prevent a possible future damage. It is therefore not about repair costs or expenses to restore a (due to the martens) previously higher property value. The marten grilles had not preserved the value of the property, but increased it. Nor were the measures energy-saving and environmental protection measures, which would be equated to maintenance costs under Art. 32 Sec. 2 DBG. For these reasons, a deduction as maintenance costs was excluded. The costs could, however, be deducted from the property gain taxes.

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