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Old 19.04.2012, 17:09
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TAX advise on house/mortgage

Dear Forum friends,

I went today to an accountant to start preparing my 2011 tax declaration here in Vaud and I have some doubts:

1.- He told me that Swiss people usually keep forever the 67% of House debt/mortgage with the bank for Tax efficiency. I personally did 50% (6 years fixed) and 50% (variable LIBOR) with the idea of paying back 50% to the bank ASAP.
a) is it really better to keep 67% (instead of 50%) of the debt forever?
c) As a tax-efficient tactict, could I make extra voluntary payments in my Pension scheme, then take out these money from the pension every 2 years to pay-back my mortgage?? Is it a good idea from the TAX point of view, how much are these money used from the pension less taxed? any restrictions?
2.- What are the deductions from my yearly income? I am single/no children. So I thought of Pension, Work-insurance... could I also add to it health insurance, private Car and house costs?

3.- Where can I find the tax brackets for Vaud Canton? I need to understand how i can jump to a lower tax bracket (by paying more into the Pension) and possibly pay less taxes. I didnt find it in vd.ch website or only online calculators, but not really the full tables ...



Thanks in advance for your help.

Kind Regards to everybody.
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Old 19.04.2012, 17:46
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Re: TAX advise on house/mortgage

Whether or not keeping maximum mortgage debt is an efficient tax strategy depends on your individual situation.

Not to sound like a brush-off, but this is one that you really should sit down and play with your actual numbers - or see a tax pro.

For instance, at these low interest rates and living in Steuerparadis Schwyz carrying the albatross around my neck that is the blue passport, the mortgage deduction is completely irrelevant to us. Depending on other financial goals and opportunities, it might make sense to pay it off - or carry a minimum amount.

But should rates change, should we move to a different canton, should OH retire, should I ever give up US citizenship... these factors might all be game-changers.

Hence my comment that one really needs to look at individual circumstances and decide from there.

Does VD have an on-line tax calculator? If so, play around with a few different scenarios to see what your optimization point would be.

Good luck!
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Old 19.04.2012, 17:49
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Re: TAX advise on house/mortgage

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1.- He told me that Swiss people usually keep forever the 67% of House debt/mortgage with the bank for Tax efficiency. I personally did 50% (6 years fixed) and 50% (variable LIBOR) with the idea of paying back 50% to the bank ASAP.
a) is it really better to keep 67% (instead of 50%) of the debt forever?
There's probably a sticky for at least some of your questions if you search for them. I'll comment here on the one I have some experience of.

Yes, it's normal to keep 65% (I always heard 65 not 67) of the debt in an interest only mortgage, which is never paid off, and may be continued from one generation to the next. As I understand it, you're taxed on the supposed rental income of the property, which is set to be roughly equivalent to the interest you'd pay on the 65% mortgage. So if you have a lower mortgage then you'll end up paying the tax difference, whether you rent the property out or not.

It's probably more complicated than that, but the 65% rule seems pretty normal across Kantons, so I'm imagining that it must be the optimum amount in most situations. Maybe the 67% works out better in Vaud.
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Old 19.04.2012, 20:30
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Re: TAX advise on house/mortgage

Thanks for the anwers.

Anybody knows anything about using the Pension as a way to be taxed less and use it to pay back the mortgage?
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Old 25.04.2012, 15:55
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Re: TAX advise on house/mortgage

Hi there,
There is a min three-year holding period before you can withdraw to pay back the mortgage after making voluntary contributions to 2nd pillar.
Remember that even though voluntary payments into 2nd pillar effectively reduce your taxable income, and therefore your tax burden, 2nd pillar funds are earmarked for retirement and will only be available to you under certain specific circumstances.
Systematically contributing and withdrawing just to save taxes may get you into trouble...
Having said that, there is no hard-set rule as to how much debt you should keep, as it depends on your specific situation.
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Old 25.04.2012, 16:06
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Re: TAX advise on house/mortgage

The question of whether to pay back capital on a mortgage is very different from one person to the next and there is no simple answer.
However it is not unusual to retain a significant debt on property even after retirement.
You'll need to do simulations yourself, or else can a neutral tax advisor to help (getting your bank to help will not provide really neutral answers!)
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