Real estate gains tax on the sale of a property

If you sell your house or owner-occupied apartment, you must pay tax on the profit you realize at the place where the property is located. The basis for this is the difference between your original purchase price and the proceeds of your sale. For the calculation of real estate gains tax, you can deduct all investments that add value from this profit. For example, the addition of a garage or conservatory, or the conversion of an attic into living space. The original purchase price plus value-adding investments together give the so-called investment costs.

You must provide proof of investment costs – but there are exceptions

As a rule, you must provide evidence of expenses that add value, even if you have carried out the value-enhancing work yourself. For older properties, however, there are two exceptions: in the cantons of AG and OW, consolidation of investment costs into a lump sum is possible for ownership periods of ten years or more. A flat rate of 80 percent of the sales proceeds then applies. As the length of ownership increases, the percentage falls to 65 percent.

Most property sellers can expect to pay less real estate gains tax with the lump sum than with the actual investment costs. In the other cantons, homeowners must collect all trade invoices for value-adding investments – even if the work goes back decades.

Study cantonal regulations

What exactly is considered an investment cost – and is therefore deductible – differs from canton to canton. This means that when selling a property, it pays to study the various cantonal regulations. Examples: the cantons of GL, GR, SZ and UR allow deductions for value-adding work carried out by taxpayers themselves only if originally taxed as income.

This is particularly important for tradespeople with their own business. As a tradesperson, you can charge the work to yourself, but you must pay tax on it as income in your business. Private individuals, on the other hand, cannot deduct value-adding “hobby” work they have carried out themselves from their taxes in these four cantons.

Differences in project costs and follow-up work

Contributions for the subsequent adaptation of roads, pavements or the sewage system from which you benefit can be deducted everywhere. However, costs for project planning work and the initial structural development of your own property are not deductible in the cantons of GE, GL, SG and SH.

All other cantons allow them, although in some cases only with restrictions, for example only if the project has been implemented. In the cantons of AG, VD and ZG, you can also deduct the costs of drawing up mortgage certificates and official property valuations. The deduction of costs for the preparation of contracts, such as the contract of sale or the condominium ownership regulations, is allowed in AG, BL, GR, NE, SZ, TI, VD and ZG. 

Be aware of the rules for renovations and brokerage fees

If you are a seller and undertake to carry out renovation work free of charge before the transfer of ownership, you can deduct your expenses from the profit on sale in AG, AI, AR, BE, BL, JU, LU, SG, OW, UR, VD and VS. Property transfer taxes and notarization costs can be deducted in AG, BS, FR, GE, GR, JU, LU, NE, SG, SO, TG and VD.

Brokerage fees for the sale of the property can also be allocated as expenses. Typical maximum amounts are 2 to 3 percent of the selling price (up to 5 percent in TI). In some cases, a flat-rate deduction in this amount is also permitted. Where the deduction is not clearly defined in a law or ordinance, you can also claim higher costs upon proof (invoice from the broker and proof of payment). 

Allowance can be made for prepayment penalties

If you cancel a fixed-rate mortgage early, you will usually have to pay the lender a so-called prepayment penalty. If the cancelled mortgage is replaced by another mortgage with the same lender, the prepayment penalty is considered tax-deductible debt interest. This is the case for example when a fixed-rate mortgage is replaced by a Saron mortgage.

If on the other hand the sale of a house is final, so that the mortgage is cancelled completely, the debt interest is not deductible. In such cases, however, the prepayment penalty can be deducted from the profit on sale when calculating the real estate gains tax. 

Place, length of ownership and profit determine the taxes due

The biggest difference is in the taxes that ultimately have to be paid: the tax rate varies from canton to canton and is usually based on the amount of profit on the sale and the length of ownership. Only AG, AR, BS, FR, GE, UR, NW, OW, TG, TI and VD apply a proportional rate for real estate gains tax. In these cantons, every profit is taxed at the same rate, regardless of the amount. All other cantons have a progressive rate that varies according to the amount of profit.

Extreme examples (as of 2023): SG still taxes a profit on sale of 200,000 francs after 20 years at the huge amount of 54,290 francs. For the same amount, TI asks for only 12,000 francs after 20 years. BL and GR also take the accumulated depreciation in the value of money into account. The tax amount usually decreases over the years – in Geneva even reaching zero after 25 years.

Almost all cantons abstain from taxation of minor profits. In most cases, taxes are levied from a profit of 4,000 or 5,000 francs. SO sets the minimum limit at 12,000 francs, while LU has a minimum of 13,000 francs. 

Special calculation for long-term property ownership

With regard to old buildings that have been owned for decades, the unanimous understanding is that fully taxing purely nominal profits in the millions would be unfair. Any purely schematic method of calculation would lead to scandalous results for such sales. While a carefully and lovingly maintained house dating from the 19th century might be worth millions today, it was perhaps to be had for just a few tens of thousands of francs back then.

To determine profit, all cantons therefore have methods to compensate for the loss of purchasing power of the franc and the price trends for older properties. Depending on the canton, the basis for calculation used is the fair value or market value of the property 10 to 30 years ago – even if the seller bought, inherited or had the house built much earlier. In BE and SG, the basis for very old houses can be the official tax value that applied as long as 50 years ago.

What the market value of an old property would have been 20 years ago is however not easy to determine. This is because there is usually no market value estimate dating back to the exact period in question. As a matter of expediency, the basis for calculation used is therefore the size of the property, or in the case of condominium ownership, the share of land held in common. Cantonal tables provide information on historical land values.

In addition to this, there is also the building insurance value at the time to be considered. These two factors together give in the property value, for example 20 years ago, from which 0.5 percent depreciation on the building must however be deducted for each year. Overall, the calculation is so complex that even given all due care on the part of the relevant officials, mistakes can easily be made. It can therefore pay to check. 

Real estate gains tax: deferred is not spared

Real estate gains tax is usually due immediately after sale. Under certain circumstances, however, the tax is deferred. That means that it is then only due on the next change of hands. This applies in particular to replacement purchases, succession, advances against inheritance or gifts, or to the settlement of claims under marital property or divorce law.

The possible reasons for deferral are listed in Article 12 of the Tax Harmonization Act. However, some cantons go beyond this. For example, the cantons of AG, GE, SH and TG also allow tax deferral if the property is sold to a spouse. The canton of AG is the only canton that allows deferral even in the case of sale to blood relatives in the ascending or descending line, i.e. in particular to parents, children or grandchildren.

Tax deferral for replacement purchases

Full deferral only comes into effect if the full proceeds of a sale are invested back into residential property in Switzerland. The real estate gains tax is due only if the replacement property is also sold again.

But even this applies only in principle: if the seller purchases another replacement property that they live in themselves, the real estate gains tax is deferred again. The tax is only due if the house goes to a third party and there is no replacement purchase. However, the deferral only applies to owner-occupied residential property, not to holiday homes or second homes.

Deferral is only possible for a limited period

However, the period for a replacement purchase is limited. Regardless of whether you buy first and then sell – or vice versa: in most cantons, the maximum period between the two transactions is two years, otherwise the right to defer tax no longer applies.

The cantons will extend this period only in exceptional cases, for example if a new building is delayed unexpectedly. This is the approach of the majority of cantons. But some are more accommodating: SH grants a period of three years, while SZ offers four, regardless of whether the property was bought or sold first.

Different periods for purchase and sale

There are however also cantons that make a distinction as to whether homeowners buy or sell first. For example, AG allows a period of three years between sale and replacement – but only two if you have already purchased the replacement property.

AI, AG and SG allow a period of three years between the sale and the replacement purchase. If you buy a new property first and then sell the old property, the period in these cantons is reduced to one year. 

Tax deferral in the event of succession and advance against inheritance

To give an example, a tax deferral of this kind also applies if parents bequeath their property to their daughter as a gift, advance against inheritance or by way of succession. While the daughter is now the new owner, the parents do not have to pay for the time being, provided that their daughter lives in the inherited house herself. The tax is only due if the daughter sells the parental home to a third party, Here again, however, the chain of deferrals continues if the daughter buys a replacement property and continues to live in it herself.

The transfer of property fees are also deferred, but not the notary fees. To obtain the full deferral, the same person must be registered as the owner at the new location (so-called subject identity). For example, a change from sole ownership to full or half co-ownership would mean that the tax authorities would only grant a deferral for half of the real estate gains tax. 

Full deferral only if the entire profit is reinvested

And finally, the tax authorities will grant the deferral in full only if you reinvest the entire proceeds of sale in new residential property. If you only reinvest a portion of the proceeds, there are two different cases:

• If the newly invested amount is higher than the investment costs of the former residential property, deferral is partial.
• If the amount is lower, the entire real estate gains tax is due immediately – there is no deferral.

It pays to get expert advice

The whole issue of real estate gains tax is extremely complex. Before selling a property, an in-depth consultation with PostFinance can therefore be valuable.