Property in another Canton - tax treatment?

Finance, Taxes, Banking, Insurance and Retirement
1
I understand that if you own a property in a different Canton (eg holiday home), or abroad, that the income is added to your taxable income to calculate the tax rate. My question is:

What if you have a taxable loss in a property in another Canton (eg only partly rented and you have made several repairs). Does this have the impact of reducing the tax rate in your Canton of residence? eg is the amount deducted from your taxable income to reach the tax rate?

Also understand that a separate tax declaration should also be made in the Canton where the other property is. However taxable income is likely to be zero here.

To be clear this is not about sale of property (where I could find similar threads) but the ongoing P&L for the property.

Thanks for any insight.

2
In principle you always have a rental revenue for 12 months per year, regardless of whether it is occupied or not, even if abroad.

You can reduce this revenue by doing maintenance or repairs, down to zero; whether you can go beyond this depends on the canton, often they allow instead certain expenses to be carried to the following year. It can also happen if you are self-employed in the other canton and didn't do well. You cannot offset property losses abroad with swiss revenues. Even with zero revenue, you still have to pay something for wealth tax, so the tax will never really become zero.

The cantons will carry out each year an intercantonal/internation repartition of all your deductions or negative tax return elements, so that the deductions are apportioned to the same ratio as the positive revenues. So if, eg you have 80% of your revenues in one canton and 20% in another or abroad, then most deductions (not the employment-related ones such as travel to work, but all others, regardless if they have nothing to do with the other canton or abroad) will also be re-adjusted as 80%-20%, so are effectively losing out part of the deduction that you would normally get in your home canton if you had nothing elsewhere.

This makes sense as otherwise someone could incur additional debt (which is tax deductible) to invest in a property abroad, resulting in additional

rental income which would not otherwise be taxable, making a perverse tax-exempt benefit.

To make calculations worse, two cantons can have and use different rules what counts as a valid property deduction and the amounts are (although most agree, eg., that one-off payments eg to notaries are not deductible) for repartition purposes, so the calculation can differ depending which canton is doing it.

For the wealth tax there is a separate repartition of positive/negative elements, but there the differences between how each canton evaluates the price of a property are so big, that cantonal adjustment coefficients are used (eg 100% for SG, 145% GE, 385% BL) to fairly repartition your wealth among cantons for wealth tax purposes.

For the federal income tax, it is your canton of residence who does the calculation, even for properties in a different canton, as well as a separate international repartition for federal tax, if you have properties abroad.

3
No. It will reduce the value of your assets for wealth tax, but does affect not your taxable income.

Tom

4
Thanks both.

Slingb - I understood you can choose not to apply the automatic allocation and instead use the actual?

Tom - a further precision. I should have said, can a taxable loss in one canton reduce the figure used to calculate the steuersatz %? Because a taxable profit would increase the rate.

5
If you have 100'000 CHF income in canton A and 20'000 CHF income in canton B, you will pay: in canton A, tax for 100'000 CHF at the tax rate corresponding to 120'000, and in canton B tax for 20'000 corresponding to the rate for 120'000, in simple terms. For a start, you declare all your global income to your primary residence tax declaration.

In theory this applies for losses also, but as I explained it is almost impossible to have a 'taxable loss' with empty properties or regular repairs. (If you spent so much to offset the annual deemed rent for the current year or several years where allowed, you probably did something to the property that increased its value, which is not deductible from your annual income tax declaration.)

Perhaps you can explain how exactly you think your loss will arise in the other canton ?

6
Thats very clear, thanks. Agree in general, I'm thinking of one off situations where for example oil heating is replaced with sustainable solution, at significant cost and certainly making the property loss making for that year.

7
The key aspect is that the income from property and income from other sources (such as work, financial investments etc.) are treated separately up till the end and separate deductions apply to each category.

Second, the costs of maintenance cannot exceed the income (hypothetical or real) from the property. The most extreme case is that the deductive costs equal to the income => no net income from the property. However, it cannot be a negative value.

As mentioned by other poster, you can generally only deduct costs to maintain the value of the property. In most cases, you cannot deduct costs of investments that increase the value of the property. Some tax consultants quote an example: replacement of an old kitchen with the same set up is considered maintenance and therefore tax deductible in the year when it was done. However, any improvement, such as addition of new appliances or replacement of a traditional oven with a steamer oven etc. would be considered value improving => most likely not accepted as maintenance costs.

To be on the safe side, best to consult a tax advisor in the right canton, or the local tax office.

Finally, I believe since 2018 or 2020, based on a new federal law, investments into energy efficient replacements/improvements (incl. solar panels, window upgrades etc.) are tax deductible as maintenance costs. This applies to federal tax and most cantons follow the same, but not all.

Even in this case, however, you cannot create negative income from a property. The max. deduction equals the income from that property.

On the plus side, if the costs are higher than income in that year, you can potentially claim the remainder in the following year (or even two).

For this, definitely advisable to consult the tax office in advance