Saving Taxes with Interest on Debt: Mortgages and Loans Overview

Many taxpayers in Switzerland finance their home with a mortgage or take out loans for other purchases. The good news: interest on debt can be deducted from taxes – but only under certain conditions.

This article explains which interest payments are deductible, how the limits work, and the differences between mortgages and consumer loans.

Interest Deduction: Basic Principle

What Is Interest on Debt?

Interest on debt refers to the costs incurred for borrowed capital. This includes:

• Mortgage interest for real estate
• Loan interest (e.g., bank loans, personal loans)
• Credit card or leasing interest

Tax Effect

Interest on debt can be deducted from taxable income, thereby reducing the tax burden.

Limitation of the Interest Deduction

Federal Rule

The interest deduction is limited:
Deductible interest is capped at the amount of taxable investment income (e.g., interest, dividends, rental income) plus CHF 50,000.

Example

• Investment income: CHF 10,000
• Interest on debt: CHF 80,000
• Deductible: CHF 60,000 (10,000 + 50,000)
• Not deductible: CHF 20,000

Mortgage Interest

Importance for Homeowners

Mortgage interest often makes up the largest portion of interest on debt and is deductible. Together with the imputed rental value, it forms the basis for taxing property ownership.

Tax Optimization

• High mortgage: More interest, larger deductions, but higher interest costs
• Low mortgage: Fewer deductions, but lower financial burden
  Many homeowners deliberately choose a certain level of debt to optimize their tax deduction.

Consumer Loans and Other Debt

Consumer Loans

Interest on consumer loans (e.g., car loans, personal loans) is also deductible – subject to the same limits.

Credit Cards and Leasing

• Credit card interest is deductible if actually incurred
• Leasing payments are not considered interest but rental costs – not deductible

Practical Examples

Example 1: Home with Mortgage

A couple pays CHF 18,000 in mortgage interest per year. Since they have CHF 5,000 in rental income and dividends, they can deduct the full interest (5,000 + 50,000 = 55,000).

Example 2: Consumer Loan

An employee has a personal loan with CHF 3,500 interest. This interest is deductible, provided the limit is not exceeded.

Example 3: Excessive Debt

An investor pays CHF 120,000 in interest but has only CHF 20,000 in investment income. The maximum deductible amount is CHF 70,000 (20,000 + 50,000).

Common Mistakes and Tips

Common Mistakes

• Declaring leasing payments as interest on debt
• Deducting interest without supporting documentation (e.g., bank certificates)
• Ignoring the deduction limit

Tips

• Always include mortgage certificates from banks
• Align debt level with tax and financial burden
• Consider the tax effect of interest when making investments
• Distinguish between true interest and non-deductible costs (e.g., leasing)

Conclusion

Interest on debt provides an attractive opportunity to reduce taxes in Switzerland – particularly through mortgages on real estate. However, the deduction is limited and depends on investment income.

Careful planning of your financing can save taxes, but it is essential to always consider long-term financial sustainability.