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Old 10.08.2020, 00:27
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Eigenmietwert versus Interest on mortgage

Hey everyone,

I‘m curious as to the following...
In general, does one end up paying more or less on income tax if one buys a property instead of renting. I know it obviously depends on many factors, but if you own, did you benefit or lose out?

As far as I can make out, it comes down to what is more - the Eigenmietwert or your interest in the mortgage... (esp. if no greater renovations are planned).

We aren’t really looking to benefit, but sort of sucks if you lose out, no? I mean together with all the other costs and extra hassle, owning property in Switzerland really is beginning to look like a neutral ‚investment‘ at best.
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Old 10.08.2020, 06:57
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Re: Eigenmietwert versus Interest on mortgage

Currently interest rates are so low that you‘d need a massive mortgage to come near covering Eigenmietwert with it.

However in the long term mortgage relief and Eignemietwert will be stopped.

Meanwhile you have to also calculate what you would pay for a mortgage compared to rent - and what you‘d have left after say 20 years renting or buying.

So, yes you pay more income tax, but CHF400 mortgage rather than CHF4000 in rent...
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Old 10.08.2020, 11:29
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Re: Eigenmietwert versus Interest on mortgage

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Hey everyone,
In general, does one end up paying more or less on income tax if one buys a property instead of renting
Be aware that if you rent the tax is paid by your landlord. It is there and included in your monthly rent.

Apart from mortgage cost you can also deduct maintenance and insurance fees.

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However in the long term mortgage relief and Eignemietwert will be stopped.
Might. Might be abolished. But considering there have been so many failed attempts to the change the current system it still might take many years until one proposal succeeds.

Discussion in parliament was scheduled for spring, but now postponed (due to COVID) indefinetly. 5 different proposed new systems are up for discussion https://www.hev-schweiz.ch/politik/s...eigenmietwert/
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Old 10.08.2020, 11:32
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Re: Eigenmietwert versus Interest on mortgage

The imputed rent for my house is about one third of what you'd pay if you were renting.
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Old 10.08.2020, 11:59
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Re: Eigenmietwert versus Interest on mortgage

If you intend to stay for a long period, buying makes more sense than renting.
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Old 10.08.2020, 12:07
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Re: Eigenmietwert versus Interest on mortgage

Caveat: As an American living in Steuerparadis SZ I have little incentive to optimize Swiss taxes, because anything I save in CH goes to Uncle Sam. And you can guess who I trust to make better use of my tax money these days. So saving Swiss tax is really not a priority for me.

That said:

Most countries - and all I've owned houses in - have some sort of property tax.

I much prefer Eigenmietwert to the typical fixed property tax I've paid back home. What you pay under Eigenmietwert is a factor of your tax bracket, making it a bit more sustainable for many homeowners.

Contrast to what I see at home where there is fixed property tax based on current market value: A young family starting out might be able to afford the purchase price of the home, but the property tax puts it out of reach for their income. And with no new young families moving in, the neighborhood loses vibrancy.

On the other end, a retired person on a fixed income is often forced to sell their home of 50 years, even though the mortgage has been long paid off, because the pension does not stretch to today's property tax levels. Which also means the neighborhood loses part of it's heart and character.

That does not happen so often with Eigenmietwert. i see it as a rather more 'social' way of taxing property. Social as in good for my community - which is in turn good for me. A neighborhood of many ages and stages of life makes for a more pleasant place to live, IME and IMO.

The tax coffers will have to be filled some way - and there are many ways much more painful to the pocketbook and to the neighborhood than Eigenmietwert!
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Old 10.08.2020, 14:23
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Re: Eigenmietwert versus Interest on mortgage

It must be noted that the "Eigenmietwert" is based on a property valuation that is usually well below the property's market value. And as I think mentioned elsewhere, the mortgage interest is also fully tax deductible.
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Old 10.08.2020, 16:29
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Re: Eigenmietwert versus Interest on mortgage

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The imputed rent for my house is about one third of what you'd pay if you were renting.
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If you intend to stay for a long period, buying makes more sense than renting.
You should factor in opportunity costs, including what you can make elsehow on the downpayment. Once you do that the calculation looks much less rosy and probably turns negative.
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Old 11.08.2020, 10:07
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Re: Eigenmietwert versus Interest on mortgage

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You should factor in opportunity costs, including what you can make elsehow on the downpayment. Once you do that the calculation looks much less rosy and probably turns negative.
at best, you get a return of about 5% on your down payment (after eigenmietwert and mainten costs, etc.).

Which means if you can invest your money at a better rate than 5% p.a. + appreciation, then you better rent.

In my personal case: With significant appreciation over the last 10 years, I more or less break even by owning compared to the opportunity cost of the downpayment in an s&p 500 etf. (Assuming the savings over rent are also invested monthly into sp500).

Obviously there are better and worse investments than sp500....
However, should the interest rates rise and/or property prices go down, the calculation is definitely in favour of renting.

Of course this is a purely financial calculation. Owning has other benefits which are not financial. But also non-financial drawbacks.
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