Imputed Rental Value Before Its Abolition: What Does It Mean for Real Estate Owners?
The imputed rental value is set to be abolished, while tax deductions will be eliminated. What can real estate owners do now — and why the system change could still be overturned.
Real estate owners in Switzerland must pay income tax on the so-called imputed rental value ("Eigenmietwert") — meaning that a fictitious income is taxed. This value is generally below the market rent and varies from canton to canton. In return, mortgage interest, maintenance costs, renovation costs for newly acquired properties, insurance premiums related to the property, and third-party property management expenses are currently tax deductible .
This is now set to change. In the final vote on December 20, 2024, the legislative proposal for a system change in real estate ownership taxation — including the abolition of the imputed rental value taxation — was approved by both the National Council and the Council of States. Additionally, both chambers passed the federal decree on cantonal property taxes on second properties. This would allow cantons to introduce such a tax to compensate for potential revenue losses resulting from the abolition of the rental value taxation.
Planned Changes
The goal is to abolish the taxation of the imputed rental value for owner-occupied properties — whether primary or secondary . Initially, the parliamentary initiative had only proposed the abolition for primary properties.
Currently, owners of self-occupied properties can deduct maintenance costs, renovation costs for newly acquired properties, insurance premiums, and third-party property management fees. In the future, these expenses will no longer be tax-deductible. However, these deductions will still apply to rented or leased properties held as private assets.
The interest deduction is also set to be restricted. Until now, private interest expenses could be deducted up to the amount of the taxable investment income, plus an additional CHF 50,000. In the future, this deduction will only be possible in proportion to all immovable assets located within Switzerland (excluding owner-occupied properties) relative to total assets. This is referred to as the quota-restrictive method. In fact, real estate owners will only be able to deduct interest if they own rented or leased properties.
However, even with the reform, a limited-time and capped deduction for mortgage interest will still be possible for first-time buyers of owner-occupied properties. In the first year, the maximum deductible amount will be CHF 10,000 for married couples and CHF 5,000 for all other taxpayers. The deduction will decrease annually by 10 percent of the maximum amount, ending after ten years.
While cantons already have the right to levy a property tax, which some have implemented, the constitutional amendment will explicitly allow cantons to impose higher taxes on predominantly owner-occupied second properties if the taxation of the imputed rental value is abolished.
What Can Be Done?
Those who still want to benefit from tax deductions will likely carry out planned renovations soon, as these tax advantages could disappear with the reform. Some homeowners may accelerate overdue, value-preserving renovations before the potential enactment of the new regulations to take advantage of the current tax deduction system.
Retirement savings from occupational pensions (second pillar) and private pension plans (third pillar) can be withdrawn not only for purchasing a home but also for financing renovations. With the Swiss government’s proposed Relief Package 27, which includes higher taxation on capital withdrawals from the second and third pillar, there is an additional incentive to withdraw capital before the planned changes take effect in order to finance renovations. While such withdrawals are subject to taxation, the value-preserving expenses financed in this way are still tax deductible.
The Outcome Remains Uncertain …
The legislative proposal for the system change in real estate ownership taxation is subject to an optional referendum, with the referendum deadline set for April 19, 2025. Due to the planned constitutional amendment, the federal decree on cantonal property taxes for second homes is subject to a mandatory referendum. This means a vote will take place regardless, and the amendment will only be approved if it gains the majority support of both the Swiss people and the cantons.
The fate of the system change depends on the constitutional amendment — without it, nothing will change. That means that while the electorate is ostensibly voting on a cantonal special tax on second properties, in reality – subject to a potential referendum against the legislative proposal – it is actually determining the fate of the imputed rental value taxation. Allegedly, the vote could take place later this year. If approved, the Swiss Federal Council will determine when the changes take effect.