Anyone who owns a home in Switzerland benefits from living rent-free but must declare the so-called “imputed rental value” as taxable income. This is a notional income based on the rent the property could generate if rented out.

The calculation of the imputed rental value varies by canton. The Swiss Federal Court mandates that the imputed rental value must be at least 60 percent of the market rent. However, cantons can set this value higher, often between 60 and 70 percent of the typical local rent. The precise calculation is often considered complicated and non-transparent for many homeowners.

Impact of Imputed Rental Value on Tax Burden

The imputed rental value is added to taxable income, thereby increasing the tax base. In return, mortgage interest and maintenance costs can be deducted from income. If you have a high mortgage and thus high-interest payments, these deductions can offset the imputed rental value, which is advantageous from a tax perspective.

However, homeowners who have significantly repaid or even fully paid off their mortgage are disadvantaged. With fewer deductible interest payments, they face higher taxes. For example, with a property worth one million Swiss francs and a mortgage interest rate of two percent, taxable income increases due to the imputed rental value. After deducting interest and maintenance costs, the taxable income remains CHF 3,200 higher than without property ownership, resulting in approximately CHF 1,100 more in taxes at a marginal tax rate of 35 percent. If the mortgage is significantly lower, the tax burden can increase by several thousand francs.

When Can the Imputed Rental Value Be Reduced?

The imputed rental value must not exceed the local market rent. Many cantons set lower maximum thresholds, often around 70 percent of market rent. If the assessed imputed rental value appears too high, there are two options:

• In cantons with self-declared tax returns, a lower imputed rental value can be entered, but it must be justified.

• In cantons where the imputed rental value is officially set, a formal objection must be filed within the deadline.

Evidence such as market analyses or independent property valuations can help support the request.

Additionally, in many cantons, a reduction of the imputed rental value can be requested due to under-occupancy, for instance, if children have moved out or after the death of a spouse, leaving parts of the home unused. In rare cases, the imputed rental value may also be reduced if there is a significant discrepancy between this value and actual income or assets.

How Can Homeowners Optimize Their Tax Situation?

With strategic planning, the impact of the imputed rental value can be at least partially mitigated:

• Homeowners can choose each year whether to deduct actual maintenance expenses or a lump-sum amount.

• It is advisable to spread major renovations or energy-efficient upgrades over several years to smooth the tax burden across multiple tax periods.

• Investments in sustainability, such as solar panels, better insulation, or heat pump systems, can be deducted as maintenance costs. Any unused energy-saving deductions can be carried forward for up to three years.

Another important consideration is mortgage strategy. Directly paying off a mortgage reduces debt but also lowers deductible interest, increasing taxable income. Indirect amortization, for example, through payments into the Pillar 3a or pension fund, is more tax-efficient. This way, the mortgage remains in place, interest payments are fully deductible, and homeowners benefit from additional tax deductions through retirement savings.

Will the Imputed Rental Value Be Abolished?

The imputed rental value has been politically controversial for years. Many criticize it as unfair for homeowners, who have no rental expenses but must still declare notional income. In August 2021, the Swiss Federal Council recommended abolishing the imputed rental value on owner-occupied homes. At the same time, tax deductions related to homeownership, especially for mortgage interest and maintenance costs, would be abolished or significantly restricted.

The final legislative proposal is not yet available. It remains uncertain whether a political majority and public approval in a potential referendum can be achieved.

Until then, the imputed rental value remains part of the tax declaration – offering opportunities for smart tax optimization, but also risks of increased tax burdens, especially in times of low-interest rates or low indebtedness.