Imputed Rental Value – What You Need to Know From a Tax Perspective
The imputed rental value always causes confusion and controversial discussions when it comes to the topic of “taxes”. According to the law, not only the income generated from renting out a property must be taxed against income, but also owner-occupied residential property must be declared in the tax return – both properties in Switzerland and abroad. In this article, we explain what the imputed rental value is, how it is calculated in the various cantons, and what all you need to take into account when declaring it in your tax return.
What Is the Imputed Rental Value?
The imputed rental value is the portion of taxable income resulting from the ownership of one or more owner-occupied properties (in Switzerland or abroad). In other words, the imputed rental value represents a fictitious income from a tax perspective. In most cantons, the imputed rental value is based on the current rent that would be received by renting out the property.
When calculating the imputed rental value, the individual cantons sometimes proceed very differently. According to federal law, the imputed rental value may not be less than 60 percent of the current, customary market rent. The value therefore varies greatly from canton to canton – usually within a band of 70 to 90 percent.
Imputed Rental Value for Domestic and Foreign Real Estate
It is important to know that Swiss tax law does not distinguish between domestic and foreign real estate when it comes to calculating the imputed rental value.
It is also irrelevant whether the property abroad is merely a second home or a vacation property. If the property is used by the owner or free of charge by family members living in the same household as the owner, the imputed rental value applies.
For the calculation of the imputed rental value, foreign real estate is theoretically valued according to exactly the same criteria as domestic real estate. This means that the current local market rent is used as the basis for assessment. In Switzerland, however, the cantons have different procedures for carrying out a tax valuation of the property. Often, these procedures cannot be applied to real estate abroad. In some cantons, for example, an official from the municipal office visits the property to determine the value. This is not possible for foreign properties. Accordingly, there are deviations in practice as to how the imputed rental value is determined.
Important: A difference arises in the taxation of income. While the imputed rental value of domestic real estate must be taxed in Switzerland, the imputed rental value of foreign real estate is only added to the total income to calculate the income tax rate. However, only the income earned in Switzerland is taxed according to this tax rate. (See also the article Taxation of foreign real estate).
What Is Deductible From the Imputed Rental Value?
In principle, maintenance costs and mortgage interest may be deducted from the imputed rental value in the tax return. Mortgage interest may be deducted in full from total income.
As far as maintenance costs are concerned, in all cantons one may choose each year whether to deduct the actual costs or a lump sum. In most cantons, the lump sum amounts to 10 percent for properties that are less than 10 years old and 20 percent for properties that are older than 10 years. Value-preserving investments and costs for energy-saving modernization measures also count as maintenance costs.
How Exactly Is the Imputed Rental Value Calculated?
The calculation of the imputed rental value is not uniform in all cantons. However, the basis for the calculation is always the value of a property. To calculate this value, the individual cantons proceed according to different systems.
|Canton||Calculation Method for the Property Value|
|AI, AR, GL, GR, LU, SG, SH, SZ, TI, UR, VS||Comparison with the same or similar rental properties|
|AG, BE, FR, JU, NW, OW, TG||Individual valuation with comparison with similar rental objects stored in a database|
|BL||Building insurance value x municipality-specific correction value|
|BS||Basis: building insurance value; consideration of age depreciation and land value|
|GE||Questionnaire about age, living space, furnishings, etc.|
|NE||Percentage of earnings and net asset value|
|SO||Basis: construction value, market value and capitalized earnings value|
|VD||Basis: living space; consideration of age, location, comfort, etc. of the property|
|ZG||Basis: purchase price or market value|
|ZH||Basis: purchase price or land and market value|
Depending on the canton, the imputed rental value is then determined on the basis of the property value, and in most cantons will be between 70 and 90 percent of the property value.
Calculation Examples for the Imputed Rental Value in Selected Cantons
The following scenario shows the tax impact of owning a property in Switzerland or abroad. The example is simplified to give you an overall idea.
Can the Imputed Rental Value Be Reduced?
In certain cases, it is possible to reduce the imputed rental value below the value determined by the canton if living circumstances change. This is referred to as the “underutilization deduction”. This means that the taxpayer does not use all the rooms in his property.
This is the case, for example, when:
- Children move out of the house or apartment
- in the event of divorce, the former spouse moves out
- the partner or another household member dies
The federal government and the cantons have different views on when a property is considered underutilized. In addition, a distinction is made between a main residence and a vacation home.
Underutilization of Main Dwellings
The federal government considers a main dwelling to be underutilized if the unused rooms are actually empty, i.e. there must be no furniture in them.
If rooms are only used to a limited extent, e.g. as a guest room or as a hobby room, this is a limited use that does not entitle the owner-occupied rental value to be reduced.
The cantons have partly different definitions of underutilization. In most cases, a reduction in residential needs is assumed, which must be accompanied by the non-use of the premises. In the case of new purchases or new construction, no reduction of the imputed rental value due to underutilization is possible.
For small apartments (4 rooms or less), a reduction due to underutilization is also not permitted.
Underutilization of Vacation Apartments
In principle, the taxpayer has no right to have an underutilization of a vacation property taken into account for tax purposes. Often, this can only be done by proving that the property can actually only be used to a limited extent, e.g. if it is unrentable or temporarily rented out to third parties.
Tax Consequences of the Imputed Rental Value
In particular, homeowners who no longer have mortgages running on their property(ies) are disadvantaged by the imputed rental value, as they can hardly claim any deductions.
Highly indebted owners, on the other hand, are less heavily burdened, as they can deduct the mortgage interest from the imputed rental value, so that in some cases the imputed rental value can even be neutralized completely.
If you are not sure whether you can reduce the imputed rental value for your property(ies), do not hesitate to contact us. We will show you your options and can help you justify the underutilization of your property(ies) to the tax authorities. You can send us a non-binding request and we will contact you promptly to discuss your situation with you.