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Income tax

Federal Court decision on the deductibility of maintenance costs in the case of a total renovation

Until now, the Federal Supreme Court's practice has qualified total renovations/comprehensive renovations of residential property under the premise of "economic new construction" as investment costs in their entirety, which were not allowed as deductions for income tax purposes.

With the decision of February this year (BGE 9C_677/2021), the Federal Supreme Court has now overturned its own practice of "economic new construction". In doing so, it is recognized that a lump-sum allocation of renovation costs as investment costs is no longer permissible. The individual works are to be examined on the basis of their objective-technical character (and not from an economic point of view) and divided for tax purposes into value-enhancing (investment costs) and value-maintaining (maintenance costs). In addition, there is another category of costs that, for political reasons, allow a deduction in income tax: Energy conservation and environmental protection investments, historic preservation, and deconstruction costs for new replacement construction. The total costs of a comprehensive renovation are thus to be allocated to one of these three categories in the future.

For private individuals, this is a positive development from a tax perspective and should no longer hinder the (necessary) comprehensive renovation of residential property, at least from a tax perspective, by putting this on an equal footing with individual renovation work or assessing it for tax purposes on the basis of the same criteria, respectively.

For any further questions or advice, please contact Remo Merz, Swiss certified tax expert, merz@fineac.ch or Barbara Bucher, Tax Manager, barbara.bucher@fineac.ch.

WHAT we do is not unique, but HOW we do it.

Remo Merz, 7 June 2023

Keywords: Tax, maintenance costs, deductions