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Old 28.10.2013, 23:26
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Mortgaged property abroad - tax deductible?

I might have done something stupid…

At the beginning of 2013 both me and my wife filed in applications for the correction of witholding tax for 2012, because we both got overcharged (me because of the year end bonus, she because of stupid payroll people, who can't correctly estimate the tax rate for people working part-time). After couple of days we got a letter back from the tax office asking for some additional documents and inquiring if we had any property. I decided to be honest and sent them back a letter stating that yes, we have a property abroad, which is worth xxx and currently it is fully mortgaged (couple of years before moving to CH we took a mortgage for more than 100% of the value, so now we're down to around... 100%). I also mentioned that we don't rent it out to anyone, so we have no income, only expenses related to mortgage payments.

Today, after 7 months, I found a letter from the tax office and I was like 'yay, we finally get our money back'. Well, we don't. They sent us back all the documents we originally submitted together with a note saying that since we own a property abroad, we need to file a full tax return and we'll receive all the forms within next few days.

After I stopped being mad at myself (for disclosing this stupid apartment, which is more a liability than an asset) and at them (for waiting 7 months just to tell me that I need to redo everything) I came to conclusion that I probably need to hire someone to help me with this tax return. If I anyway need to go through this whole process and probably wait for the money for another year, I might as well try to get back as much as possible.

After this rather lenghty introduction I can finally get to my questions
Has anyone been in a similar situation (mortgaged property abroad)? If so:
- is it possible to deduct the mortgage abroad from Swiss income tax?
- how can I prove to the tax authorities that we really don't have any income from this property? If it's not possible, how do they know how high the rental income for an apartment abroad should be?
- can you recommend any company in Basel that could help us with the tax return?

Thanks in advance.
Karol
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Old 29.10.2013, 06:44
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Re: Mortgaged property abroad - tax deductible?

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After this rather lenghty introduction I can finally get to my questions
Has anyone been in a similar situation (mortgaged property abroad)? If so:
- is it possible to deduct the mortgage abroad from Swiss income tax?
- how can I prove to the tax authorities that we really don't have any income from this property? If it's not possible, how do they know how high the rental income for an apartment abroad should be?
- can you recommend any company in Basel that could help us with the tax return?

Thanks in advance.
Karol
Yes you can deduct the mortgage interest payments from property abroad from your Swiss tax. You will need to provide the tax authorities with a mortgage statement from your lender for the year in question.

If the property is let out you can provide them with the rental income but if not they will use a theoretical value for the rent you could have received for the property if you did rent it out. They make there own calculations and as far as I know the location of the property is not taken into consideration.

Sorry I can't help with a tax advisor as we're not in Basel
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Old 29.10.2013, 07:46
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Re: Mortgaged property abroad - tax deductible?

Your property abroad will also have to be put down as being part of your "wealth" for taxation purposes. You'll have to work out it's current market value and convert that into Swiss Francs. Don't panic too much though, the wealth tax side is usually fairly low.
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Old 31.10.2013, 12:31
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Re: Mortgaged property abroad - tax deductible?

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Your property abroad will also have to be put down as being part of your "wealth" for taxation purposes. You'll have to work out it's current market value and convert that into Swiss Francs. Don't panic too much though, the wealth tax side is usually fairly low.
Not market value... taxable value. Since our Swiss property is worth about twice its tax value, I take 60% of the market value of oversease property. There is a more formal methodology that the tax office would use (capitalized notional rental value based) but hey... save a few CHF.
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Old 19.01.2014, 09:13
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Re: Mortgaged property abroad - tax deductible?

What if you don't tell them at all? And what if they find out about it a year or two later? Is there a penalty?
They may see a dramatic drop in your bank account here from your previous year which can raise questions...

The questions are because I am finalising the purchase of one abroad and will have to answer these questions next year when I submit the taxes.

I have a proper tax person doing my taxes here in zurich. Can I ask these questions to her or will she then be put Ina difficult situation
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Old 19.01.2014, 12:10
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Re: Mortgaged property abroad - tax deductible?

I can't see why she would be put in a difficult situation apart from having to spend a few minutes more on filling out your tax return.
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Old 19.01.2014, 13:00
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Re: Mortgaged property abroad - tax deductible?

One benefit is that you will also be able to deduct any money you spend on repairs and/or, if the place is rented out, any fees you pay to a management company to manage it for you.
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Old 19.01.2014, 13:22
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Re: Mortgaged property abroad - tax deductible?

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I can't see why she would be put in a difficult situation
i think the gist was that they would ask the accountant what the implications of declaring the property were, and then make a decision based on the answer. I would expect that an accountant wouldn't be allowed to turn a blind eye to something like that.
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Old 19.01.2014, 13:46
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Re: Mortgaged property abroad - tax deductible?

A question along the same line, if you have declared that you have a rental property overseas to the swiss tax authorities, and then you decide to sell it after 10 years...and make a capital gain (say 500,000 chf) ...will the swiss tax you for the capital gain?
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Old 19.01.2014, 14:21
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Re: Mortgaged property abroad - tax deductible?

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A question along the same line, if you have declared that you have a rental property overseas to the swiss tax authorities, and then you decide to sell it after 10 years...and make a capital gain (say 500,000 chf) ...will the swiss tax you for the capital gain?
Nope not for a property outside of Switzerland.
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Old 19.01.2014, 14:21
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Re: Mortgaged property abroad - tax deductible?

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A question along the same line, if you have declared that you have a rental property overseas to the swiss tax authorities, and then you decide to sell it after 10 years...and make a capital gain (say 500,000 chf) ...will the swiss tax you for the capital gain?
I wouldn't have thought so, but I am not a tax expert. Capital gains tax is generally taxed locally as would be the income from the rental.

Foreign income, such as rental income, is generally used to determine your tax bracket, but is then deducted from your taxable income. But hey, that's just my .2c with no guarantees.
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