Mortgage Interest, Maintenance, and Renovation Costs: Which Deductions Are Possible?

Homeowners in Switzerland can take advantage of various tax deductions. In particular, mortgage interest as well as maintenance and renovation costs can be deducted from taxable income. When used correctly, these deductions can significantly reduce the tax burden.

This article explains which costs are deductible, how the limitation on interest deductions works, and what homeowners should consider regarding maintenance and renovations.

Mortgage Interest and Taxes

Deducting Mortgage Interest

Mortgage interest can be fully deducted from taxable income. This significantly reduces taxes, especially for large mortgages.

Example

A homeowner pays CHF 15,000 in mortgage interest per year. This amount can be directly deducted from taxable income.

Limitation on Deductible Interest

Deductibility is limited. Only the following can be deducted:

• The actual mortgage interest paid, and
• A maximum of CHF 50,000 in addition to taxable asset income (e.g., interest, dividends, rental income).

This prevents taxpayers from using high leverage purely for tax optimization.

Maintenance and Renovation Costs

Basic Principle

Maintenance costs for properties are deductible to preserve the value of the property.

Flat-Rate vs. Actual Costs

Homeowners can choose between:

• Flat-rate deduction: Usually 10%–20% of the imputed rental value or rental income (depending on the property’s age)
• Actual costs: Deduct actual maintenance expenses (e.g., invoices from contractors)

This choice can be changed annually for flexibility.

Deductible Maintenance Costs

• Repairs and upkeep (e.g., roof repairs, heating service)
• Replacement of installations (e.g., boiler, windows, kitchen – replaced with equivalent)
• Garden or building maintenance
• Administration fees for external property managers

Value-Preserving vs. Value-Enhancing Renovations

• Value-preserving (deductible): Costs that maintain or restore the original condition
  • Example: Replacing an old heating system with an equivalent, renovating bathrooms or kitchens in original design, painting façades
• Value-enhancing (not deductible): Investments that increase the standard or property value
  • Example: Adding a conservatory, converting the attic into living space, installing a luxury kitchen

Energy-Efficient Renovations

• Tax advantages: Deductible even if value-enhancing, e.g., insulation, solar panels, heat pumps, replacing oil heating with sustainable systems
• Special rule since 2020: Costs not fully deductible in the first year can be carried forward up to two subsequent years

Documentation

To ensure the tax office accepts deductions, the following documents are important:

• Contractor invoices
• Contracts with construction companies
• Proof of mortgage interest (bank statements, interest statements)
• Documentation for energy-efficient renovations

Practical Examples

Example 1: Mortgage Interest and Flat-Rate Deduction

A homeowner pays CHF 12,000 in mortgage interest. They also use a 20% flat-rate deduction on their imputed rental value of CHF 15,000 (CHF 3,000). In total, CHF 15,000 can be deducted from taxable income.

Example 2: Renovation with Actual Costs

A family renovates their bathroom for CHF 25,000. CHF 18,000 is considered value-preserving (deductible), and CHF 7,000 is value-enhancing (not deductible).

Example 3: Energy-Efficient Renovation

A homeowner invests CHF 60,000 in a solar system. As the tax burden cannot be fully reduced in the first year, the deductions are spread over three years.

Common Mistakes and Tips

Common Mistakes

• Confusing value-preserving with value-enhancing costs
• Not keeping invoices for maintenance
• Assuming all modernizations are deductible

Tips

• Clarify deductible costs before major renovations
• Compare flat-rate and actual costs to choose the optimal option
• Plan energy-efficient measures strategically, as they are particularly tax-advantaged

Conclusion

Homeowners in Switzerland can significantly reduce their tax burden through deductions for mortgage interest, maintenance, and renovation costs. The key is understanding the rules on interest limitations and distinguishing between value-preserving and value-enhancing investments.

With careful planning, complete documentation, and strategic use of deductions, property owners can greatly optimize their tax situation.