Hi all -
I am in the fortunate position to be buying a house in Jura after a decade and a half of renting in cities. I am also in the fortunate position to be able to buy it outright - at 600k its good value but it does need 100/150k spending on it which now leaves things a little too tight (and there's also the question of future valuation versus investment that I am very aware of).
Friends tell me that I really should get a mortgage in every case in order to be "net better off". That I should consider Eigenmietwert as well as other taxes and offset certain 'renovations' and upkeep against the tax. I am looking into the possibilities of what constitutes valid deductibles and time frames - which is tricky in its own rights.
My question is - is there a specific amount I should consider lending in order to maximize the maximum deductibles (and schedule specific work for respective years)? At what threshold do I start seeing diminishing returns?
Thanks in advance folks!!
Taxable value of the property (often 1/3 the real value) - mortgage = taxable value for wealth taxes.
Tom
If you are speaking about Canton Jura, I can tell you that improvements to property here are not tax deductible - only maintenance is. So this year we replaced our roof (maintenance - tax deductible) and put in additional drainage around the foot of the property (partly funded by the Canton as two years ago we were flooded) and the drainage work is considered improvement and is not tax deductible. Similarly our neighbours replaced gaz de ville heating with air heat pump and solar - not tax deductible as considered an improvement (their house is only 8 years old so in the absence of them being able to prove that their heating had actually broken it was assumed it was an improvement not maintenance - which as my neighbour said, it was!)
Also there is no upper limit to how much maintenance costs you can set against your taxable income - so our very expensive new roof will mean that in 2025 we will have a very small amount of tax to pay as it will wipe out a very large part of our otherwise taxable income, and that in 2026 they will use the 2025 taxable amount to base that year taxation estimate on and we will end up paying a huge extra amount at the end when they see that actually we were back to our usual taxable amount .. so no need to stagger work in that if it is deductible against your income, you can deduct it, but watch out for the onward effect on your tax bills and plan for that.
I‘ve answered the mortgage vs. Eigenmietwert multiple times over the years. Please search the forum. Hint: Your friends aren‘t tax advisors, so don‘t take tax advice off them!
Replacement and maintenance is tax deductible on your income taxes. Improvements can be deducted from profit on sale to reduce the capital gains tax, which particularly in the first years can be brutal. Spreading the bills over several tax years is likely to save you more tax as it is deductible at your marginal rate.
I guess the question is what would you do with the money otherwise. Maybe you save 2.5% on mortgage but could earn 3% elsewhere? The downside with being mortgage free is you tied up your money in a single illiquid asset.
When you could get sub 1% fixed rate mortgages, it was a no-brainer to take the free money and have the flexibilty of having that cheap cash available.
There's no one size fits all that answers the question on mortgage or not mortgage. You really have to do the sums yourself.
When I retired, I had to look at whether it made tax sense to pay off all or part of my mortgage. For tax calculations, I simply used the tax declaration software (Vaudtax in the case of Vaud) to do the sums for me. I guess that would work in most other cantons too.
Although this doesn't take into account the good point made above that money tied up in property is pretty well tied up and is harder to access - particularly an issue if this property is in Canton Jura where the property market is ... quiet. Very quiet.
This is only true if you use the free money wisely, invest it. More or less, it is a real estate secured investment loan for relatively low total cost. Remember: To get X amount in tax deductions you have to roughly pay 3 times X as interest to the bank. A total loss of 2 times X which you have to recover with your investments.
Thanks to the repliers! Good information - and I guess I need to look at the maintenance aspect of taxation here. And given that maintenance is the only tax benefit consideration but that it encompasses salary as well as mortgage interest it would seem that there is little tax benefit for a mortgage at all.
The other points on having your cash tied up in a house - I dont really have the time to invest to beat the 2.5% interest rate and given the impending bear market cycle I am inclined to focus on core business primarily and leave the investing down to evenings and weekends
The point about having cash tied up is more about how quickly can you get your hands on your cash if you need it. In your original post you spoke about Jura and I am still assuming you mean the Canton of Jura - in which case I assume you realise that the property market here is the slowest moving by some margin in the whole of Switzerland .. especially the more expensive properties which believe it or not, a 600,000 chf property would fall into. People don’t have that sort of money round here to spend on houses in that bracket and it being a rural backwater, there is not much demand incoming. So the property market is very slow. Indeed. If you want your cash out of your property you could be waiting a couple of years or more
Would you mind pasting a link, or replying again? I searched but unfortunately didn't find it, and have had the question of when to stop returning mortgage (eg at which % of the house value, given X interest rates) for some time now. Would be grateful, thank you!
The other option is to take the maximum mortgage using Saron and immediately repay a large portion. This enables you (if your bank agrees) to have a line of credit if you need it. We did this recently to buy and renovte a holiday house.