Taxing Rental Income: What Is Actually Deductible?

The Invoice Is Not Decisive — the Underlying Tax Position Is

Anyone letting a holiday apartment, business apartment, serviced apartment or other furnished accommodation generates income that is relevant for tax purposes. This does not, however, determine which expenses may be offset against that income.

Five questions must be answered before assessing any individual invoice:

1. Who owns the accommodation?
2. Who earns the rental income?
3. Is the property classified as a private or business asset?
4. Does the expenditure relate to maintenance, value-enhancing capital expenditure, a business expense or an initial acquisition?
5. Has a standard deduction already been claimed that covers the same cost?

The description used on the invoice is not decisive. Work described simply as a “renovation” may be entirely value-preserving, entirely value-enhancing or require allocation between the two components.

Four Models with Different Tax Consequences

Private Property Owner

Under Swiss case law, letting personally owned real estate generally constitutes private asset management. This may remain the case even where several properties are let professionally, commercial records are maintained or external service providers are engaged.

The rental income nevertheless remains taxable. In relation to privately held real estate, value-preserving maintenance costs, certain insurance premiums and third-party management costs may generally be deducted. For direct federal tax purposes, the taxpayer may instead elect a standard deduction for each property and tax period:

• 10% of gross rental income or gross imputed rental value for buildings up to ten years old;
• 20% for buildings more than ten years old.

Cantonal rules may differ. The federal standard deduction is unavailable for properties used predominantly for business purposes by third parties.

Tenant Subletting Accommodation

A person subletting rented residential premises does not own the underlying property. Renovation expenditure paid by the tenant therefore cannot automatically be deducted as maintenance expenditure relating to personally owned real estate.

Depending on the canton, the proportion of the tenant’s own rent attributable to the subletting period and certain additional costs may be taken into account. This requires a clear distinction between private use, subletting and any separate business activity.

It must also be established under tenancy law whether the subletting and any structural alterations are permitted under the tenancy agreement and have been approved by the property owner. Tax deductibility does not replace this legal assessment.

Operator Managing Third-Party Properties

A business that manages accommodation on behalf of property owners does not normally earn income from its own real estate. Its taxable income instead consists of the agreed management, operating or service fees.

Cleaning services, personnel, software, vehicles and operating supplies may constitute business-related expenses. The underlying maintenance costs of the property nevertheless generally remain attributable to the property owner, unless the contractual arrangements and invoicing establish otherwise.

Business Holding Property as Business Assets

Where buildings, furnishings or operating assets form part of the business assets of a sole proprietorship or company, the rules of commercial accounting apply. Operationally necessary expenditure may be recognized in profit or loss. Assets expected to provide benefits over several years must generally be capitalized and depreciated over their useful lives.

Not every payment therefore becomes an immediate expense in full. The decisive issue is the economic value acquired or created by the business.

Maintenance, Value Enhancement or Business Expense?

Value-Preserving Maintenance

Value-preserving expenditure restores the property’s previous condition or function. Typical examples include:

• repairing an existing building component;
• replacing defective equipment with an equivalent item;
• repainting existing walls;
• sanding and resealing an existing parquet floor;
• repairing an existing heating, plumbing or electrical system;
• replacing an existing appliance with a comparable model.

For privately held real estate, such costs may generally qualify as property-maintenance expenditure, provided the taxpayer is the owner, a usufructuary or the holder of a right of residence and does not elect a standard deduction covering the same costs.

Value-Enhancing Capital Expenditure

The value-enhancing component of a measure is the part that improves the previous standard, creates additional forms of use or expands the property.

Examples include:

• installing an additional shower for the first time;
• converting a previously uninhabitable room;
• installing a new partition wall to create an additional room;
• expanding an existing installation;
• replacing an existing item with a substantially higher-specification version;
• installing equipment that was not previously present.

For privately held real estate, value-enhancing expenditure is not deductible from income as current maintenance. It may, however, qualify as investment expenditure for real estate gains tax purposes when the property is subsequently sold. The relevant invoices must therefore be retained over time and clearly allocated to the respective property.

Initial Fit-Out and Furnishings

Beds, sofas, tables, lighting, linen, tableware, electronic appliances and decorative items do not automatically constitute property maintenance. Depending on the circumstances, they may constitute:

• private household furnishings;
• costs already covered by a specific furnished-letting allowance;
• low-value business assets that may be expensed immediately;
• or business assets that must be capitalized and depreciated.

Installations permanently attached to the building may be treated differently from movable furniture. Describing an acquisition as “inventory” is not sufficient if, in economic substance, it forms part of an installation incorporated into the building.

The Owner’s Own Labor

The notional value of the owner’s own working time is generally not deductible in relation to privately held real estate. A person who paints their own apartment cannot additionally claim a hypothetical contractor’s wage.

Material costs must be assessed separately. In the Canton of Bern, work performed by a self-employed person may only be recognized where it has been recorded as income and does not constitute value-enhancing expenditure.

Why Identical Costs May Receive Different Tax Treatment

Whether renovation, maintenance or operating costs are deductible depends on the specific circumstances and the practice of the competent tax authority. A description such as “operator,” “property manager” or “private letting” is not, by itself, determinative.

The relevant factors include:

1. cantonal tax legislation and the applicable administrative practice;
2. ownership, tenancy and contractual arrangements;
3. classification as private or business assets;
4. the party that actually incurred the cost;
5. classification as value-preserving maintenance, value-enhancing capital expenditure, furnishings or operating expenditure;
6. any standard deduction already claimed;
7. the business or private use of the accommodation;
8. the quality of invoices, payment records and other supporting evidence.

The same expenditure may therefore be treated differently in a private ownership structure, an owner-operated letting arrangement, a subletting arrangement or a professional property-management business. The decisive factor is not the role description used by the parties, but the underlying legal and economic structure.

A general statement that operators can—or cannot—deduct renovation costs would therefore be unreliable. Deductibility must be assessed by reference to the individual circumstances and the practice of the competent tax authority.

Canton of Bern: Furnished Letting and a Specific Standard Allowance

The Canton of Bern publishes a specific rule for furnished residential premises held as private assets. It applies both to long-term letting and to temporary letting through platforms.

The entire gross rental income, including ancillary charges, must be declared as income. A furnished-letting allowance equal to 33.33% of that income is then applied automatically.

The allowance covers, in particular, the following costs:

• heating, water and electricity;
• wear and tear on furniture, linen and tableware;
• cleaning and the wages of cleaning personnel;
• cleaning products and other consumables;
• guest reception and guest transportation;
• tourism and visitor taxes;
• platform, brokerage and listing costs;
• internet, telephone, office supplies, hardware and software;
• furniture and contents insurance;
• debt-enforcement and collection costs.

These costs may not be deducted again as actual operating or management expenses. Doing so would result in the same expenditure being recognized twice.

The property’s actual maintenance costs must be distinguished from these expenses. Subject to the applicable conditions, the owner may elect either the standard deduction for property-related costs or the substantiated actual maintenance costs.

Simplified Example

A privately held furnished apartment generates annual gross rental income of CHF 30,000.

The furnished-letting allowance applied in the Canton of Bern amounts to approximately CHF 10,000. Among other items, this covers cleaning, platform fees, consumables, linen and wear and tear on the furniture.

If the owner has additionally paid CHF 15,000 to renovate an existing bathroom, the invoice must be assessed separately:

• a like-for-like replacement may constitute value-preserving maintenance;
• an additional shower or substantial improvement in comfort may be wholly or partly value-enhancing;
• an invoice that does not allocate the individual components makes it more difficult to claim the full deduction.

The actual invoice is not disallowed merely because the 33.33% allowance applies. It must, however, relate to genuine property maintenance and must not include operating or furnishing costs already covered by the allowance.

Renovation Examples from the Practice of the Canton of Bern

The allocation schedule published by the Canton of Bern illustrates how apparently similar work may receive different treatment.

Classified Entirely as Maintenance

• refreshing or repairing existing walls and ceilings;
• replacing existing flooring with an equivalent product;
• sanding and resealing a parquet floor;
• repairing or equivalently replacing an existing kitchen;
• repairing or replacing an existing washing machine;
• repairing or equivalently replacing existing utility lines.

Classified Only Partly as Maintenance

• installing a higher-specification wall or ceiling finish instead of basic painting;
• installing parquet flooring in place of laminate;
• replacing a kitchen with a substantial improvement in comfort;
• replacing a basic door or installation with a higher-specification version.

For several of these examples, the Canton of Bern allocates two thirds of the cost to maintenance. The remaining third is classified as value-enhancing expenditure. This allocation represents cantonal administrative practice and is not a standard allowance applicable throughout Switzerland.

Not Classified as Current Maintenance

• installing flooring for the first time in a previously uninhabitable room;
• installing a washing machine for the first time;
• installing additional facilities for the first time;
• constructing a new partition wall to create an additional room;
• the owner’s own labor, excluding material costs;
• tools and do-it-yourself equipment.

For substantial renovations, the scope of work should therefore be divided into individual line items before work begins. An invoice containing only a generic description such as “apartment conversion” provides little reliable basis for allocating the expenditure for tax purposes.

Depreciation Applies Only Within the Appropriate Tax Structure

Depreciation allocates the acquisition cost of a business asset over its useful life. It is not a general substitute for a private cost deduction that has been disallowed.

The standard rates published by the Swiss Federal Tax Administration apply to the non-current assets of commercial enterprises. Where depreciation is calculated on acquisition cost rather than book value, the rates stated for book value are halved.

Buildings Used in the Restaurant and Hotel Sector

• 6% of book value where the building is capitalized separately;
• 3% of acquisition cost;
• 4% of book value where the building and land are recognized jointly;
• no depreciation on the value attributable to land.

This category cannot be selected merely because an apartment is let furnished. The actual business use and the tax classification of the building are decisive.

Business Furniture and Fixtures

• 25% of book value;
• 12.5% of acquisition cost.

In a recognized business operation, this category may include furniture and movable operational fixtures.

IT Equipment, Hardware and Software

• 40% of book value;
• 20% of acquisition cost.

Recurring software subscriptions must be distinguished from capital assets. They are not normally capitalized as assets with a multi-year useful life unless the business has acquired a long-term license or internally generated software that meets the capitalization criteria.

Hotel and Catering Linen and Tableware

• 45% of book value;
• 22.5% of acquisition cost.

These rates likewise presuppose the existence of business assets. For privately held furnished accommodation in the Canton of Bern, wear and tear on linen and tableware is already included in the 33.33% allowance.

Tools and Equipment

• 45% of book value;
• 22.5% of acquisition cost.

Whether an item must be capitalized and depreciated or may be recognized immediately as an expense because of its low value depends on the accounting policy, materiality and the applicable cantonal assessment.

Motor Vehicles

• 40% of book value;
• 20% of acquisition cost.

Private-use components and mixed use must be separated. Occasional use of a private vehicle in connection with an accommodation property does not convert the entire vehicle into a business asset.

Calculation Example

A business capitalizes furniture acquired for CHF 20,000 and applies a declining-balance depreciation rate of 25% to the book value:

• Year 1: depreciation of CHF 5,000; remaining book value of CHF 15,000.
• Year 2: depreciation of CHF 3,750; remaining book value of CHF 11,250.
• Year 3: depreciation of CHF 2,812.50; remaining book value of CHF 8,437.50.

Under the declining-balance method, the depreciation charge decreases each year. Applying a constant annual charge equal to 25% of the original acquisition cost would therefore be incorrect.

VAT Must Be Assessed Separately

Income or corporate income tax and value added tax are governed by different rules. Expenditure may qualify as a business-related expense for direct-tax purposes without automatically giving rise to a full input tax deduction.

Turnover Threshold

A domestic enterprise generally becomes liable for VAT where it carries on an independent economic activity in its own name, seeks to generate income from supplies on a sustainable basis and reaches relevant turnover of at least CHF 100,000.

Relevant supplies in Switzerland and abroad are generally taken into account when assessing the turnover threshold. The net amount remitted by a booking platform is not, by itself, determinative.

Platform settlement statements should therefore identify at least the following amounts separately:

• the total price paid by the guest;
• platform and payment-processing fees;
• refunds and cancellations;
• separately collected charges;
• the amount actually remitted;
• any VAT already disclosed.

Special Rate for Accommodation Services

Where supplied by a taxable person, the provision of accommodation is currently subject to the special VAT rate of 3.8%. Breakfast is included within this treatment even where it is invoiced separately.

Under current law, this rate is limited until December 31, 2027. A legislative proposal to extend it until the end of 2035 is pending. Invoices and price information relating to later supply periods must therefore be reviewed by reference to the law in force at the relevant time.

Accommodation Services or Residential Letting

Ordinary residential letting and accommodation services receive different treatment for VAT purposes. A stay lasting one or several months does not resolve the classification automatically.

The relevant factors include:

• the contractual terms and the service actually supplied;
• the intended use of the accommodation;
• furnishing and operational availability;
• ancillary services included in the arrangement;
• how the supplier presents the arrangement to the guest or tenant;
• whether invoicing is issued in the supplier’s own name or on behalf of another party.

A business apartment cannot therefore be assigned to a particular VAT rate solely on the basis of its description or the duration of the stay.

What Changes on January 1, 2029

The abolition of imputed rental value will enter into force on January 1, 2029. At the same time, the deduction of property-maintenance costs for owner-occupied residential property will be discontinued for federal, cantonal and municipal tax purposes.

The maintenance-cost deduction will remain available for rented or leased real estate because the corresponding rental and lease income will continue to be taxable.

For accommodation with mixed use, the allocation will become more important. A distinction must be made between:

• periods of exclusive owner occupation;
• periods during which the property was actually let;
• vacant periods during which it was nevertheless available for letting;
• privately used rooms;
• areas used exclusively for business purposes.

The detailed treatment of second homes used partly by their owners and partly for letting will additionally depend on future cantonal administrative practice.

Documentation That Facilitates Correct Tax Classification

For tax-return or accounting purposes, every material expenditure item should be linked to at least the following information:

• the property and specific unit concerned;
• the owner, tenant or contracting operator;
• the invoice date and service period;
• the condition before the work was undertaken;
• the work actually performed;
• whether the work constituted like-for-like replacement or a qualitative improvement;
• the respective value-preserving and value-enhancing components;
• any insurance proceeds or third-party contributions;
• private and business use;
• the standard allowance elected or the deduction of actual costs.

For renovation work, the following documentation is additionally advisable:

• a quotation containing separate line items;
• a detailed final invoice;
• photographs documenting the condition before and after the work;
• a floor plan or building description where the use has changed;
• an explanation of the standard that was replaced;
• proof of payment.

In the Canton of Bern, deductible costs must generally be claimed in the tax year in which they are invoiced. Mere advance payments are insufficient where no completed and clearly identifiable partial service exists.

How Oprivia Can Support Preparation

Oprivia does not calculate taxes and does not replace accounting or tax advice. The platform is designed to allocate operational tasks, service cases and supporting evidence to a specific accommodation property and a specific stay.

This allocation can support subsequent preparation by making it easier to identify:

• which accommodation property was affected;
• which operational event gave rise to the expenditure;
• when the service was performed;
• which service provider was involved;
• which documents or photographs relate to the case.

Tax accounting and the assessment of deductibility remain the responsibility of the operator, the accounting function and the competent tax professional.

In Brief

Can Renovation Expenditure Be Deducted in Full?

Only to the extent that it constitutes value-preserving maintenance and the additional requirements are satisfied. Value-enhancing components, initial installations and the value of the owner’s own labor must generally be excluded.

Are Platform Fees Deductible in Addition to Other Costs?

That depends on the tax classification and the applicable cantonal practice. For privately held furnished accommodation in the Canton of Bern, platform and brokerage fees are already covered by the 33.33% furnished-letting allowance.

Can Furniture Be Depreciated?

Where furniture constitutes recognized business assets and has been capitalized, it may be depreciated using the applicable rates. In the case of privately held furnished accommodation, cantonal standard allowances may apply instead. The two forms of deduction must not be combined in respect of the same expenditure.

Is the Owner’s Own Renovation Work Deductible?

The notional value of the owner’s own working time is generally not deductible. Material costs must be assessed separately according to their actual use.

Can a Tenant Deduct Renovation Expenditure as Property Maintenance?

Not as an owner’s maintenance expenditure relating to personally owned real estate. Whether the expenditure may be recognized as a subletting cost or a business-related expense depends on the contractual arrangements, actual use and tax classification.

Does Letting Several Personally Owned Apartments Automatically Constitute Self-Employment?

No. Under Swiss case law, even extensive and professionally organized letting of personally owned real estate may remain private asset management. Additional services and the overall circumstances may nevertheless justify a different classification.

Does the 3.8% VAT Rate Apply to Every Furnished Accommodation Property?

No. The special rate applies to accommodation services supplied by taxable persons. Whether a particular supply constitutes an accommodation service or residential letting subject to different treatment must be determined from the contract and the actual scope of the service.

What Changes for Rented Accommodation in 2029?

The maintenance-cost deduction will generally remain available for rented or leased real estate. It will, however, be abolished for owner-occupied residential property. Costs must be allocated appropriately where the property is subject to mixed use.

Conclusion: Correct Tax Allocation Is Decisive

Whether expenditure is deductible does not depend on whether it is described as “renovation,” “management” or “operating costs.” The decisive factors are ownership, the taxpayer’s legal and tax position, classification as private or business assets, the nature of the measure and any standard allowances already claimed.

Furnished accommodation presents a particular risk of recognizing individual costs twice or combining private standard allowances with business depreciation. Separating gross rental income, renovation components, furnishings, platform fees and VAT creates a substantially more reliable basis for the tax return and accounting records.