Saving tax through a renovation may sound unlikely at first. Yet if you plan your renovation cleverly, you can not only save money on the work itself but also benefit from tax relief. What matters is the scope of the renovation you are planning, because not every change is rewarded with tax relief.
Preserving value or increasing value
Renovation work only offers tax savings if the changes aim to preserve the value of a property (Werterhaltung) rather than increase it (Wertsteigerung). You can only save tax through a renovation if this line is drawn clearly. For example, you might renovate your bathroom and install a whirlpool instead of a normal bathtub. That would count as an increase in value, so there would be no tax savings from the renovation.
That is why it is important to plan in advance exactly what you want to convert or renovate. With the right planning, you can save tax in a targeted way while modernising your home.
Planning the renovation
Regardless of whether a renovation lets you save tax, you should always plan it in advance. Sometimes it actually makes more sense to put better living quality ahead of savings from tax relief. If your kitchen is due for renovation or you want to refurbish your bathroom, first plan exactly what you want to change. Only as a second step should you check whether the renovation lets you save tax.
What counts as preserving value
You can only save tax through a renovation if the work preserves the value of the property. Tax law therefore sets out exactly what counts as value-preserving work in a renovation.
Tax savings through value-preserving renovation work:
– Kitchen renovation
– Bathroom renovation
– Insulation upgrades (windows, façade)
– Heating replacement
– demolition work is also deductible if the old house is replaced by an energy-efficient new building
New build instead of renovation
A new feature of tax law is the tax savings available when a renovation is no longer economical, or when demolishing and rebuilding is the better option. Since 2020, property owners can save tax not only on a renovation but also when a new building meets modern energy standards.
The important point is that the new building must in any case have a better energy performance than the previous one. Before you start planning a new build, however, you should first find out whether you can already save tax by replacing your existing heating system or through energy-efficiency renovation work, such as installing better insulation. This is considerably cheaper and less time-consuming.
Value preservation is often a matter of interpretation
Saving tax on a renovation can be quite a challenge. Whether a renovation preserves value or increases it cannot always be clearly defined. The tax savings from a renovation are therefore often just an added bonus that property owners should not rely on. For this reason, you should plan your renovation primarily around how you imagine your home, not around saving tax, only to end up without the living environment you really want.
Work that clearly preserves value
If you want to save tax on a renovation, you should preferably commission work when something needs repairing. Painting work is also classed as value-preserving and is tax-deductible. As a rule of thumb, work that is necessary counts as preserving value. Replacing a damaged bathtub counts as value-preserving, but if you enlarge your bathroom, that is an increase in value.
In principle, however, a renovation only offers tax savings if the work is carried out by professionals. If you are a keen DIYer and paint the rooms yourself, you cannot claim the costs. One aim of allowing tax savings on renovations is to support local tradespeople and give them work. If you do the renovation yourself, you have already saved by not paying for tradespeople.
Spreading the refurbishment
If you want to save tax on a renovation, you should plan for the long term. You have to file a tax return (Steuererklärung) every year, so you can save tax on renovation work every year too, and there are also upper limits on how much you can save. A larger building refurbishment offers many opportunities to save tax. Always divide the work up by priority and start with the most important jobs in the first year.
Depending on the scope of the refurbishment, you can save tax on your renovation over several years. In addition, you do not have to pay for the entire refurbishment at once but can finance the work step by step.
Get advice
If you intend to save tax through a renovation, you should find out as much as you can beforehand. Make use of the advice available, as this will not only help you plan your renovation better but may even let you save more.
Besides tax savings, there are other ways to finance a renovation. These include various subsidies, for example if your renovation also focuses on protecting the environment. You then often benefit twice: if you install a sustainable heating system, for instance, you can save tax on the renovation and further reduce the costs with subsidies.
You should therefore always clarify what tax savings a renovation offers before you start any building project.
Flat-rate or actual-cost deduction
How complicated saving tax on a renovation can be is also shown by the fact that you can choose between a flat-rate deduction (Pauschalabzug) and a deduction of actual costs (effektiver Abzug). With the flat-rate option, you receive a fixed amount that does not have to match your actual costs. With the actual-cost deduction, you can claim the costs you really incurred. The drawback of this option is that the tax authorities check closely whether the work really preserves value. You should not shy away from this form of tax saving, especially if the potential savings are much greater.
Because saving tax through a renovation is a very complex topic, you should not only seek advice from the authorities but also get help when preparing your tax return. A professional can tell you more reliably which invoices you can claim and how best to save tax after a renovation. Above all, however, it is important that you only save tax through the renovation and do not end up making a profit from the renovation or from any subsidies. Instead of saving tax through the renovation, you might then have to pay tax on that profit.
Need help with your renovation?
To make sure your renovation runs smoothly and you get the right support, the team at umbaumanager.ch is on hand with advice and practical help. Whatever renovation you are planning, we at umbaumanager.ch support you from planning and providing qualified tradespeople through to official permits, if you wish. Sit back and relax, and we will do the rest for you. As a house renovation company, umbaumanager.ch takes over the complete coordination of your renovation work and is happy to advise you first-hand. Feel free to take a look around our website.
