Renting or buying your own home and the influence of taxes

Rent or buy? In this article, we examine the question of how big an impact taxes have on taxpayers who own their own property, and how homeowners should fill out tax returns for their property.

In the following sections, we compare the financial scenarios for renting and buying a fictitious property over a holding period of 30 years. For the comparison, you can vary the influencing factors of rent, investment return, mortgage interest, property value development, tax rate for the imputed rental value and maintenance costs and calculate different scenarios.

1. General Scenario

In this scenario, all factors are widely diversified to answer the general question: rent or buy?

From this broadly based general scenario it is clear that Income and return on purchase or rental side are decisive are. For the homeowner but still results in a significant impact of taxation of 8%. It also shows that the Choice of mortgage with a sensitivity of 20% in third place stands.

The following graph shows that, with a small but lasting success, the tenants have a financial advantage He has earned more with his investments than the property has increased in value. Individual factors such as independence and freedom of action are not included. On the rental side, however, it should not be forgotten that there is less administration to worry about. It is also clear that the slight The benefit here is approximately equal to the tax expense.

Results: After 30 years, the values ​​of the investment

• • for the buyer at CHF 1.6m – 1.8m

• • for the tenant at CHF 1.5m – 2.5m

    gone up.

Assumptions: annual increase in value the property (1% – 1.5%) and market interest rate for investments (3% – 4%).

Furthermore, it is assumed: Price / down payment house CHF 1m / CHF 200k, mortgage interest 1.5% – 3%, rent CHF 2.5k – CHF 3k, maintenance costs 1.25% – 1.4%, transaction costs of 0.5% and tax rates in the canton of Zurich / municipality of Meilen for incomes between 100’000 and 300’000 Francs (total tax rates approx. including federal tax).

2nd scenario: Further rising property prices and rents, low interest rates, low taxable income

In this scenario, we assume that the real estate boom will continue as housing will remain scarce in Switzerland.

Due to the tax burden and the good location of the property as well as low mortgage costs, this is an assumed dream scenario for the homeowner.

After 30 years, the values ​​of the investment

• • for the buyer at CHF 2.1m – 3m

• • for the tenant at CHF 932k – 1.9m

    gone up.

Assumptions: annual increase in value (2%) and market interest rate for investments (3% – 4%).

Furthermore, it is assumed: Price / down payment for house CHF 1m / CHF 200k, mortgage interest 1.5%, rent CHF 2.5k – CHF 4k, maintenance costs 1.25% – 1.4%, transaction costs of 0.5% and tax rates in the canton of Zurich / municipality of Meilen for income of approx. 100’000 Francs (total tax rates approx. including federal tax).

Scenario: stagnating real estate prices and rents, medium interest rates, high taxable income

Conversely, there are situations in which the main influencing factor of value development can make ownership unattractive. In many cases, the value assumed here of 0.5% can even tip to 0 or into the negative.

After 30 years, the values ​​of the investment

• • for the buyer at CHF 1.4m – 1.4m

• • for the tenant at CHF 1.3m – 2.9m

    gone up.

Assumptions: annual increase in value (0.5%) and market interest rate for investments (3% – 4%).

Furthermore, it is assumed: Price / down payment house CHF 1m / CHF200k, mortgage interest 3% – 4%, rent CHF 2.5k – CHF 4k, maintenance costs 1.25% – 1.4%, transaction costs of 0.5% and tax rates in the canton of Zurich / municipality of Meilen for incomes between 100’000 and 300’000 Francs (total tax rates approx. including federal tax).

Scenario: High appreciation and taxable income, moderate mortgage interest

In the last scenario, a good property location is assumed with high rents, but also a high tax burden.

After 30 years, the values ​​of the investment

• • for the buyer at CHF 1.4m – 5.3m

• • for the tenant at CHF 1.3m – 2.7m

    gone up.

Assumptions: annual increase in value (0.5% – 4%) and market interest rate for investments (3% – 4%).

Furthermore, it is assumed: Price / down payment house CHF 1m / CHF 200k, mortgage interest 2% – 3%, rent CHF 2.5k – CHF 4k, maintenance costs 1.25% – 1.4%, transaction costs of 0.5% and tax rates in the canton of Zurich / municipality of Meilen for income above 300’000 Francs (total tax rates approx. including federal tax).

Tax Procedures

As can be seen from the scenarios, the Taxes account for a significant proportion of the costs In the latter case, it can increase by up to a third. Normally you can expect 10-15%.

The following topics should always be considered when considering buying a home:

1. 1. The mortgage interest is crucial in the long term. Although long-term insurance makes the calculation predictable, the market interest rate still the best choice. Good offers are best found on a mortgage exchange. The tax deductions on assets and income currently compensate for the imputed rental value.

1. 1. Although the Maintenance costs are not highly sensitive in the total bill they are crucial for taxes. The more the better. If you treat yourself to a bathroom renovation or a newly designed garden, for example, and this is not considered an increase in value, the expenditure can be deducted from income tax with receipts.

1. 1. Value-adding investments over the 30-year holding period are in the event of a possible sale from the real estate capital gains tax deductibleThe focus here is particularly on scenarios with high increases in value. Since the property gains tax return is complex and is due at the time of sale, it is worth planning in advance. Depending on the canton, the tax remains in place even if the property is sold after more than 20 years. In the canton of Zurich, it is still 20% of the net profit.

1. 1. Depending on your income and the resulting tax progression, it is worth Ownership optimised to distribute to partners or companies (e.g. commercial property).

1. 1. The Pension and Home Ownership Promotion (WEF) usually always plays a role over time, but is often paid out and later paid back in (source and legal basis). It is also worth asking a professional when planning your retirement.

Rent or buy? In the end, this question is not just a comparison of numbers but often a personal decision. Often, your own home is worth more than an abstract return. This is precisely why homeowners should not give away money when it comes to mortgages and taxes.

We also use the “Rent or Buy Calculator” used in the article in tax consulting. Contact us if you support in decision-making need.