Workshop led by Toni Hess, Daniel Bader, Rachid Ghazi, and Hanna Brozzo as part of the ISIS seminar on September 12–13, 2022, titled “Real Estate in Private Assets.”
Note: This language version is an automatically generated translation. The text may therefore contain linguistic and terminological errors.
view in original language (German)Giovanni Eroini owns a house located in the municipality of Samedan, which he purchased in 2019 at a market value of CHF 920,000. While the ground floor, which he rents out, houses a hair salon, he lives on the first and second floors with his wife and two children. The attic is neither insulated nor finished and serves as a storage space. The property is part of Giovanni Eroini’s private assets.
In 2020, Mr. Eroini had his house—excluding the ground floor—remodeled and renovated. Accordingly, he claimed the costs for the following investments on his 2020 tax return:
a) The walls throughout the house were freshly painted. The hardwood floors in the bedrooms were replaced.
b) In the living room, the old wall-to-wall carpet was removed and replaced with oak hardwood flooring.
c) A wall between the living room and the kitchen was removed, and a fireplace was installed.
d) The attic was insulated to reduce energy consumption. It continues to be used as a storage space.
e) Alternative to item d): The attic was not only insulated but also converted into an apartment.
After the hairdresser terminated the lease, Mr. Eroini had his house extensively renovated. According to the construction invoice, the total costs amount to CHF 1,025,000. Following the renovation or complete refurbishment of his house, a new official appraisal was conducted, which showed a market value of CHF 1,920,000.
Specifically, Mr. Eroini makes the following investments:
After purchasing the house in 2019, Mr. Eroini decided against a complete renovation. Instead, two years after buying his house—during the 2021 tax year—he installed a photovoltaic system (on the roof of his house) with a battery storage unit. Its capacity is less than 100 kWp (kilowatt-peak). In addition, he had the house fully insulated (including the roof), installed new windows, completely covered and glazed the patio to expand the living space, and installed a new kitchen.
Costs incurred:
Since 2018, KLEIV payments have been available for photovoltaic systems with a rated output of less than 100 kWp. Operators of systems with an output of 100 kWp or more can apply for a large one-time payment (GREIV).
Net income (= total income minus production costs and general deductions [before social security deductions]) of Mr. Eroini for the 2021 tax year, before taking the above-mentioned costs into account: CHF 145,000.
b) What would the legal situation be if Mr. Eroini were to install the photovoltaic system not on the roof of his house but in his garden? 3. What are the tax implications of the KLEIV in the amount of CHF 18,000? 4. What would be the legal situation if Mr. Eroini had claimed the entire investment for the photovoltaic system, amounting to CHF 60,000, as a deduction when he made the payment in 2021, but did not receive the KLEIV payment of CHF 18,000 until 2022? 5. How do you assess the expenses for insulating the entire house, for the new, more energy-efficient windows, for the roofing and glazing of the patio to expand the living space, and for replacing the kitchen? 6. What is the amount of the costs related to energy conservation and environmental protection that Mr. Eroini was unable to fully deduct in the 2021 tax year? What specific claim can Mr. Eroini file regarding these costs? 7. Why might the question of whether incurred property costs are (merely) for the purpose of maintaining value or serve energy conservation and environmental protection be significant? 8. What is the legal situation regarding the costs of the photovoltaic system in the case of a complete renovation?
Mr. Eroini does not use all of the electricity he generates for his own consumption. He feeds the surplus energy into the grid. In return, he receives a feed-in tariff (so-called “feed-in compensation”) of 10 from the relevant utility company.
What is considered taxable income in this case?
Mr. Eroini holds his property as business assets. It should be noted here that operating a photovoltaic system on a property that one lives in generally does not constitute self-employment.
Stefanie Ernst is the owner of a property located in the city of Zurich (Sihl Manegg), which she inherited in 2009 from her mother, who had since passed away. At the time of inheritance, the debt-free property was appraised by Wüest & Kunz at CHF 7,800,000.
At the time of the inheritance, Stefanie’s childhood home stood on the property, where her mother, Mrs. Ernst, had lived until her death. The manufacturer’s villa, built in the 1890s, has always been in the family. It featured extensive grounds and was ideally located between the Sihl River, the highway, and the Sihltalbahn railway. The sprawling park is beautifully nestled between two branches of the Sihl River and is surrounded by mature trees.
However, her parents’ financial situation in recent years no longer allowed for major renovations. It was sufficient, however, for necessary maintenance. At the time of her mother’s death, the property was in modest but livable condition. The same was true of the grounds, which required a great deal of care and maintenance.
Thanks to her solid personal financial situation, Stefanie was able to realize her dream and carefully restored the villa between 2010 and 2013. She invested primarily in energy-saving and heat-insulating features. In addition, an elegant swimming pond was added to the grounds, and the antique pavilion was completely upgraded to meet today’s energy efficiency standards. A detailed breakdown of the energy-efficiency and value-enhancing measures, as well as the construction of the new pool, totals CHF 2,200,000.
The villa is located in the heart of a long-term pilot project for the 2,000-watt society. Urban living and high-density housing are on the rise. Steadily rising real estate prices, falling interest rates, and, ultimately, the neighborhood’s development led Stefanie to join the local project development in 2015 and develop the property in collaboration with a general contractor.
Four stylish apartment buildings, each with 7 units (90 square meters each), were built on the property. Based on the planned sale of the individual units, the estimated market value totals CHF 42,840,000; construction costs amounted to approximately CHF 12,600,000.
Stefanie Ernst intends to sell between three and ten apartments directly to friends and acquaintances and to rent out the rest.
As part of the planning for the apartment buildings, a requirement was imposed to preserve the exterior of the historic manufacturer’s villa, including the natural pond. Regarding the Neo-Rococo garden pavilion with its herringbone oak parquet flooring, ornate stucco work, and marble cladding, the historic preservation authorities became involved.
Ms. Ernst reached an agreement with the authorities that the pavilion would be preserved true to the original, but could be relocated within the existing property. The corresponding historic preservation work amounts to approximately CHF 500,000.
Accordingly, three apartment buildings can still be built on the remaining lot. The manufacturer’s villa was lovingly integrated into the project and converted into modern office space. Stefanie Ernst intends to sell between three and ten apartments directly to private individuals she knows and to rent out the rest.
Given the highly attractive office space, the total proceeds (from the villa with offices and the three apartment buildings) could amount to approximately CHF 37,000,000. Construction costs remain unchanged at approximately CHF 12,600,000.
In 1992, Stefanie Ernst’s mother inherited a substantial fortune from her sister in the United States. She decided to move from the old villa to a modern city apartment, which she had renovated to make it suitable for her age.
She continued to tend the garden surrounding the industrialist’s villa as a hobby. However, she allowed the villa itself—which had been severely neglected for years—to fall into disrepair. The industrialist’s villa now served only as a home for birds, foxes, and mice. The pavilion was mostly overrun by pigeons.
In this condition, Stefanie Ernst inherited the property on the Sihl in 2009. Since she had been living in the U.S. with her partner since 2005, the property lay fallow for many years. The villa served as a hedgehog rehabilitation center for ProNatura.
In 2015, Ms. Ernst decided to implement the project described at the beginning (basic facts) and to proceed as outlined in the above description.
In January 2022, Ms. Zürcher (a widow) transferred an (unencumbered) 15,000 m² building lot on the outskirts of Zurich to her two descendants. There are no other legal heirs. The contract (contract for transfer of ownership—mixed gift) stipulated, among other things, the following:
Ms. Zürcher, together with her brother, Mr. Berner, received this property in equal shares in 2000 from their mother (who died in 2002) as a gift. Their mother had been the sole owner of the property since before 1960. In 2011, Mr. Berner (who is childless and unmarried) transferred his share to Ms. Zürcher by way of a gift. No gift tax or real estate gains tax was levied at that time.
The building lot is currently lying fallow (undeveloped meadow) and has thus far been taxed based on its income value. It constitutes private assets for each of the individuals mentioned, and it has not been subject to the provisions of the Federal Act on Agricultural Land Law for several decades. There has been no rezoning (improvement of land use potential) since 2021.
The following values are available:
Ms. Zürcher is not a widow but is married. The remaining facts remain unchanged; in particular, the parcel will be transferred only to the two descendants in 2022.
The walls of an old (no longer usable) barn still stand in the middle of the parcel. As described in the base scenario, the parcel is taxed at its income value (CHF 1/m²) as part of the private assets. Likewise, the remaining elements of the scenario remain unchanged compared to the base scenario.
A is the owner of the developed property x. The development costs of the property amount to CHF 20 million, and the market value is CHF 30 million. Behind property x is a slightly elevated property y owned by B. B wishes to ensure that she retains her beautiful view of the Alps and proposes to A that he grant her an easement (restrictions on vegetation and building height) in favor of her property y and at the expense of his property x. In return, B offers A CHF 1 million. A agrees. A corresponding easement agreement is concluded, and the easement is entered in the land register.
The property x is located on Lake Greifensee in the canton of Zurich and is built on only by a small, old single-family home. The larger portion is undeveloped, specifically the entire right half (as viewed from the lake). Thanks to the sparse development on property X, B enjoys a lake view from her property Y. She wishes to preserve this view for her property Y and proposes to A that a building restriction be established for the undeveloped half of property X as an easement in favor of her property Y and at the expense of property X. In return, she offers a payment of CHF 3 million. A agrees to the deal. The purchase price of the entire property (excluding buildings) was CHF 2 million; its current market value (excluding buildings) is CHF 8 million.
A few years later, A receives an extremely attractive offer from a prospective buyer for property x. However, the buyer is willing to purchase it only if the building restriction is lifted beforehand. B has since passed away, and her heirs, who live abroad, have leased property y and are no longer interested in it. A offers the heirs CHF 3.5 million to have the building ban lifted. The heirs accept the offer.
Property X in the canton of Zurich is undeveloped. A grants B a building right on Property X, for which B pays a one-time compensation of CHF 1 million and an annual building right fee of CHF 30,000.
The structure of the building right is as follows:
a. Irregular personal servitude
b. Regular personal servitude
c. Regular personal servitude 2. How should the resale of the building right be treated for tax purposes in Subvariant 1?
Facts as in Scenario 2a, but Plot x is now developed. B pays A, in addition to the aforementioned amounts (lump-sum compensation and annual building right rent), compensation of CHF 500,000 for the existing building. Sub-scenarios as in Scenario 2a).
