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  #41  
Old 30.11.2016, 23:30
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Re: Eigenmietwert on (unused) property abroad?

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Unless it's a new build, It'll be probably valued at 70% of sale price, so a 700k taxable asset. Minus 650k mortgage leaves 50k wealth to be taxed. If you take into consideration that you've poured 350k cash into it, the act of buying it will make you look 300k poorer from the tax perspective.
But if it is Neubau, then the listed price has to be used? The equity put to buy the flat would be only counted in the first year? Or can it be amortized over many years? And are you refering to wealth tax, or to Eigenmietwert too?

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For an apartment in ZH, Eigenmietwert is calculated as 4.25% of taxable value of the property, but before the 70% sale price correction. This taxable value often is up to 3 times lower than market price as people have reported in this thread, especially for older buildings. So, for 1M sale price, old but maintained property, Eigenmietwert should be roughly on the order of ~ 15k. 20% of it you can deduct immediately, so your taxable income would increase only by ~ 12k. Assuming a single high earner in Zürich city, marginal tax rate is 39%, which means 4680 Fr in taxes to be paid for your property. Cheaper in the low tax suburbs. More expensive for new builds.
So this taxable value is somehow calculated by the authorities? And is it equal to purchase price for new flat? What is marginal tax rate?
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  #42  
Old 30.11.2016, 23:44
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Re: Eigenmietwert on (unused) property abroad?

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So this taxable value is somehow calculated by the authorities?
Yes, they will calculate it for you.

Here's the currently effective legislation in all its glory: https://www.steueramt.zh.ch/internet...bewertung.html

Main highlights IIRC:
* property value = land price + building's current value
* property value for wealth tax purposes will be set to at least 70% of sale price, if there was a recent sale.
* land prices are listed in the tables, value depends on the municipality and Lageklasse (see http://maps.zh.ch/). They're highly undervalued currently.
* building's new value = insurance value, after it has been built, or the actual construction costs so far during the build (possibly discounted by something)
* bulding's current value = new value - 1% for every year since build, max 30%.
* Eigenmietwert = 4.25% of property value for apartments, 3.5% for single-family houses. For MFH you pay tax on the actual rents you're taking in.
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  #43  
Old 01.12.2016, 10:05
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Re: Eigenmietwert on (unused) property abroad?

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Well, I use the value my commune gave me, which in various places in Ticino is always around 1/3 of commercial value.

Maybe it depends on the canton.

Tom
When I look at the register/cataster values for the two properties that I own (one is shared with the rest of my family) I get a value of about 1/3 of what I guess the market price to be for one of them, but about 1/10 (!) of the market value for the other... this is a crazy difference
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Old 01.12.2016, 11:46
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Re: Eigenmietwert on (unused) property abroad?

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When I look at the register/cataster values for the two properties that I own (one is shared with the rest of my family) I get a value of about 1/3 of what I guess the market price to be for one of them, but about 1/10 (!) of the market value for the other... this is a crazy difference
These must be long-established properties (a nice way of saying old)...
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  #45  
Old 01.12.2016, 11:52
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Re: Eigenmietwert on (unused) property abroad?

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These must be long-established properties (a nice way of saying old)...
Oh yes, so old that I wonder whether the second property should be corrected in the register, something that I would not have any interest in doing, also because I plan to donate my part to another family member in the near future (months).

People here suggested that I use such cadaster value, but though such value would look "ok" for one flat, the same would look suspicious for the other property and then at that point the value of both might need to be reassessed...
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  #46  
Old 01.12.2016, 13:56
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Re: Eigenmietwert on (unused) property abroad?

So I have put the data into a calculator:



So the result says that taxable income goes up by 16'395 and the marginal tax rate is 31.7%. What does it mean? How much more tax is to be paid? Please explain.

By the way, is there any way the authorities can check if you have real estate abroad? or if you have any income from it? or should you only declare it because you're "supposed to"?
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  #47  
Old 01.12.2016, 14:01
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Re: Eigenmietwert on (unused) property abroad?

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By the way, is there any way the authorities can check if you have real estate abroad? or if you have any income from it? or should you only declare it because you're "supposed to"?
It depends if they have an agreement with that country. If they don't have it today it does not mean they won't have one in the future...
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  #48  
Old 01.12.2016, 14:05
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Re: Eigenmietwert on (unused) property abroad?

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Oh yes, so old that I wonder whether the second property should be corrected in the register, something that I would not have any interest in doing, also because I plan to donate my part to another family member in the near future (months).

People here suggested that I use such cadaster value, but though such value would look "ok" for one flat, the same would look suspicious for the other property and then at that point the value of both might need to be reassessed...
You're thinking way too much about it, and now you're past the deadline for submission. Cadaster value is usually just fine, even if it's extremely low. Attach your italian cadaster valuation with your tax return if you're in doubt, let the tax office handle it for you.

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So the result says that taxable income goes up by 16'395 and the marginal tax rate is 31.7%. What does it mean? How much more tax is to be paid? Please explain.
To a first approximation: 16'395 * 31.7%

The term 'marginal tax rate' means simply the derivative of tax to pay as a function of your taxable income.

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By the way, is there any way the authorities can check if you have real estate abroad? or if you have any income from it?
In the past probably no. But automatic data exchange regulations starting from next year might change it all. Also large amounts of cash suddenly and unexplainably appearing on your tax declaration after the sale will look bad.
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  #49  
Old 01.12.2016, 14:07
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Re: Eigenmietwert on (unused) property abroad?

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It depends if they have an agreement with that country. If they don't have it today it does not mean they won't have one in the future...
The UK land registry won't have a clue where the owner currently lives, same in France so I don't see how any info could be exchanged with anyone.
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  #50  
Old 01.12.2016, 14:19
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Re: Eigenmietwert on (unused) property abroad?

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So the result says that taxable income goes up by 16'395 and the marginal tax rate is 31.7%. What does it mean? How much more tax is to be paid? Please explain.
Meadow, the Swiss system rewards a homeowner who carries a large mortgage. People who put down 20%, rather than your 35%, or those who do not pay down or off their mortgages, will often see their Eigenmietwert almost cancelled out by their deductions for mortgage interest.

But with home ownership one really needs to think of all-in costs. You are probably paying a more favorable interest rate when you put down 35%, so that savings should be thought of as a counter balance to your tax increase.

It might be prudent to sit down with a tax pro to make sure that you are taking all the home ownership related deductions you are entitled to. Tax planning is highly recommended when considering home ownership.

---

Me, I'm too much of an American to feel comfortable with the bank owning my home so carry the smallest mortgage that is sensible - resulting in a higher tax hit due to Eigenmietwert. But then, as an American living in the Steuerparadis SZ, it makes little sense for me to try to reduce my Swiss taxes as I'll just have to fork any savings over to Uncle Sam. So I don't sweat the Eigenmietwert stuff.

But bottom line - I'm actually thankful for Eigenmietwert, as it's a less onerous system than the property tax regimes I've faced elsewhere. At least your Eigenmietwert liability is tied to income, meaning that when your income is lower (starting out, senior citizens, etc.) the bite will be less. At home, many young couples are unable to get on the property ladder, and seniors are forced to sell the homes they love due to fixed property taxes.

Last edited by meloncollie; 01.12.2016 at 15:52. Reason: 'for' not 'or'
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  #51  
Old 01.12.2016, 14:33
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Re: Eigenmietwert on (unused) property abroad?

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Meadow, the Swiss system rewards a homeowner who carries a large mortgage. People who put down 20%, rather than your 35%, or those who do not pay down or off their mortgages, will often see their Eigenmietwert almost cancelled out by their deductions or mortgage interest.
Mortgage interest deduction and Eigenmietwert are independent things. One is not limited in any way by the other.

The thing that Swiss tax system really rewards is debt. All kinds of debt, not just mortage. Except leasing - that's usage, not debt. Debt interests are fully tax deductible. If you're high earner, this can benefit you greatly because of the high tax progression. In Zurich, a single high earner hits 39% marginal tax rate pretty quickly. Which means that after taxes, a mortgage with a 1% rate actually effectively costs you only 0.61%!
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  #52  
Old 01.12.2016, 14:58
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Re: Eigenmietwert on (unused) property abroad?

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By the way, is there any way the authorities can check if you have real estate abroad? or if you have any income from it? or should you only declare it because you're "supposed to"?
I would say the Swiss tax system is much more based on honesty and trust than the tax system of any other country I've dealt with so far. There is very liitle you actually need to prove. At least in my experience so far I've never had to explain anything. And I guess trust begets trust. So don't abuse the system.

And furthermore (at least in my case) the actual effect on the overall tax bill is pretty moderate. So why cheat?

I also agree that in future exchange of information between countries will increase. If you have a property without tenants in a foreign country you are probably making regular payments to that country. Be it for the mortgage, for maintenance, for utility bills, for taxes or whatever. Today this is still a secret between the bank and you. But things won't stay that way forever.
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  #53  
Old 01.12.2016, 15:47
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Re: Eigenmietwert on (unused) property abroad?

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You're thinking way too much about it, and now you're past the deadline for submission.
Yes, but I called them and they told me it's fine if I send it in with a few days' delay.
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  #54  
Old 01.12.2016, 17:34
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Re: Eigenmietwert on (unused) property abroad?

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To a first approximation: 16'395 * 31.7%
5200 per invested 350'000. That's 1.5% extra cost per year. Ouch. That means index funds are competitive to a mortgage even with such low interest rates.
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large amounts of cash suddenly and unexplainably appearing on your tax declaration after the sale will look bad.
I know people who came to Switzerland just for work and they constantly send their money to the country of origin, planning to buy flats and later live off rent. Their plan does not include sending the money back to Switzerland. The question is, are they safe until they earn enough to leave (which may take some years).
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People who put down 20%, rather than your 35%, or those who do not pay down or off their mortgages, will often see their Eigenmietwert almost cancelled out by their deductions for mortgage interest.
OK, but with 20% you need to pay the amortisation and after some time you arrive at 35% anyway. But sure, if the bank would offer an attractive interest rate, it's an option.
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Me, I'm too much of an American to feel comfortable with the bank owning my home so carry the smallest mortgage that is sensible
That's the real question: is your own home a good place to put so much of your wealth into? It's instinctive to do it, but it limits your freedom and the money could do a better work somewhere else.
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But bottom line - I'm actually thankful for Eigenmietwert
It's a system that is relatively attractive for rentees and mortgage owners in comparison to full owners.
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And furthermore (at least in my case) the actual effect on the overall tax bill is pretty moderate. So why cheat?
You would think so, but don't forget about compouding. Every percent of your invested money that goes for taxes will not be reinvested. And people who buy flats abroad and rent them out for profit would not like to be hit by tax twice.
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Old 01.12.2016, 17:39
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Re: Eigenmietwert on (unused) property abroad?

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5200 per invested 350'000. That's 1.5% extra cost per year. Ouch. That means index funds are competitive to a mortgage even with such low interest rates.
So what? You need to compare it with renting as you've gotta live somewhere. You're probably generating some 5-15% for your landlord on his own invested capital when renting.

Also capital gains on property can be quite attractive. In ZH there's been >30% increase in prices over last years. But it's also a risk of course.
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Old 01.12.2016, 17:50
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Re: Eigenmietwert on (unused) property abroad?

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So what? You're probably generating some 5-15% for your landlord on his own invested capital when renting. And you gotta live somewhere.
Hmm... Let's say you have 350'000 cash and rent a flat worth 1'000'000, for which you pay 3% Kaltmiete annually. Your money you invest in SMI or some other index fund for an average long term return of 6%.

investing: +21'000
rent: -30'000
total: -9'000

Now you decide to ditch the stock Exchange and take a fixed mortgage for 15 years for 1.2%. No more rent, no more gains from investing.

mortgage: -7'800
eigenmietwert: -5'200
total: -13'000

That's why I say the Eigenmietwert is a deciding factor. Or?
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  #57  
Old 01.12.2016, 18:04
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Re: Eigenmietwert on (unused) property abroad?

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for which you pay 3%
That's a bit optimistic figure. People will try to sell you property at 3% gross yield, sure everyone's looking for idiots, but rent out more like at 4-5% yield. Let's take 4.5%: you'll pay 45000 Fr to rent. That makes your scenario A total at -24000.

For scenario B, don't forget that mortgage and 20% of Eigenmietwert are tax deductible, so +3500 ((7800+5200*0.20)*0.39) to your balance sheet. Total: -9500. And there mortgages as low as 0.69%...

The risks in A and B are also totally different.
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  #58  
Old 01.12.2016, 19:32
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Re: Eigenmietwert on (unused) property abroad?

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That's a bit optimistic figure. People will try to sell you property at 3% gross yield, sure everyone's looking for idiots, but rent out more like at 4-5% yield. Let's take 4.5%: you'll pay 45000 Fr to rent. That makes your scenario A total at -24000.

For scenario B, don't forget that mortgage and 20% of Eigenmietwert are tax deductible, so +3500 ((7800+5200*0.20)*0.39) to your balance sheet. Total: -9500. And there mortgages as low as 0.69%...

The risks in A and B are also totally different.
4-5% is against what my research says. I rent a big modern flat outside city center in Zurich and I would be surprised if the value was less than 800'000. Yet my rent is 2100 + 300 nebenkosten, and the building is managed by a company, so the rate is not set by a private person. I asked my friends and all their rent is within 3% of value. You can also check that a big flat in Goldkueste costs around 1'500'000 and they ask 4'500 for rent, including nebenkosten. This is also supported by the data on numbeo.com:



Could back your 5% by some proof?

The 5200 already includes the deductions of mortgage and maintenance. It's (30'000 - 6'000 - 7'600) * 31%. It is the final cost. I think you overlooked that.

Yes, the risks are totally different. If you buy a flat then you bet on that particular location. You can estimate the risk moderately good and have low volatility. When you buy an all-world index, then you bet on the whole world's economy. You're saying in 30 years your flat will gain more in value than the World's economy. Maybe, but the flat only changes value because of supply and demand, not because it has upgraded somehow. If anything, real estate will become outdated and cry for renovation.
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  #59  
Old 01.12.2016, 19:47
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Re: Eigenmietwert on (unused) property abroad?

I ran your hypothetical situation of an increase in taxable income from 100,000 to 116,395 in Zurich in the calculator on Homegate. It gave an increase of approx. 5k, which feels much more reasonable compared to the 16k you have.

I also ran your numbers against an affordability calculator from Credit Suisse. If you earn 120k a year as implied by your 100k taxable income, even with 350k down, they will not lend you the remaining 650k. Affordability is calculated at 5% interest plus maintenance costs (and amortisation, which is not relevant in your example) and can't be more than 33% of gross income. Looks like a minimum of 128k income would be needed.
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Old 01.12.2016, 20:00
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Re: Eigenmietwert on (unused) property abroad?

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I rent a big modern flat outside city center in Zurich and I would be surprised if the value was less than 800'000. Yet my rent is 2100 + 300 nebenkosten
I'm telling you, people will gladly sell you property at 3% yield or less. Enough people apparently buy at these prices. I wouldn't really pay 800k for your flat if you're paying only 2400 in rent for it. Your landlord probably didn't pay anything near 800k for it either.

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Could back your 5% by some proof?
Look at the ads for multi-family houses or financial reports of publicly traded swiss real estate funds to get an idea of what professional investors are getting.
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