Whenever you wish to sell property, it is often worthwhile to renovate beforehand. It makes it much easier to enchant the future purchaser. Renovation work can also be very lucrative on a tax level. You must, however, be aware of which renovations make most sense and how to prioritize them. Synopsis.
Why should you renovate before selling?
The aim is to give a favourable impression to potential purchasers by ensuring that flooring is not scratched, carpets are not threadbare or wall are not dirty. This will make selling easier. A future purchaser can more easily imagine themselves living in the property. You should also do your utmost not to scare them off by talking about the fact that they will have to carry out substantial, costly work before they can move in.
Moreover, by renovating you are more likely to make a firm sale faster. Take for example one of our clients who had been trying to sell an exquisite, well-located house for quite some time. He had a difficult time trying to convince potential purchasers because the house only had one bathroom on the first floor. One day, our client decided to turn a large cupboard, on the ground floor, into a bathroom. Four months later the house was sold.
Pitfalls to avoid
Remember, not all renovation work is necessary. Useful work is work which is visible and which addresses a real need. Fitting solar panels on the roof of your house is, of course, a worthy objective, but most purchasers are not really looking for this sort of installation at the moment. On the other hand, renewing surfaces (walls, floors) is not very costly, attracts attention immediately because of it's great condition.
Undertaking substantial work prior to selling can even be counter-productive. There is a real chance that the kitchen which you have just totally revamped is not to the purchaser’s taste and that they decide to pull out everything and start over again. As such, the investment you have made is worth nothing. Before beginning any work, it is really worthwhile to get an opinion from a broker who will be able to tell you if the work is useful or not for encouraging the sale of your property.
Can this impact the selling price?
Renovation work has usually but little impact on the capital gain which the owner makes when selling their property. At the most, the owner-seller may be able to add the cost of the work to the selling price and, as such, cover their costs and break even. In other words, renovation work can really help boost the selling process, but will not help the seller earn more money.
The cost of the work may, however, be deducted from the property gains made during the sale. This, in turn, will reduce the property gains tax.
What if I wish to reduce my tax bill?
Work deemed indispensable – changing a broken boiler or repairing a leaky roof – can be deducted from income tax as this work is considered as preserving and not increasing the value of the property. Most cantons in Switzerland give you the choice between a flat-rate and a real deduction. Work which is intended to improve the energy efficiency of your dwelling, for example by fitting solar panels on the roof or by improving the thermal insulation of the walls and windows are also tax-deductible.
More substantial renovation work which results in an increase in the value of the property is not tax-deductible however. Notwithstanding, the additional interest costs which the owner-seller must pay on their mortgage loan, which will have gone up, may be deducted from tax.
Should all renovation work be carried out at once or scheduled over several years?
Urgent work should, of course, be carried out immediately. For the sake of comfort and to prevent greater damage which would end up being much more expensive to repair.
As regards minor upkeep, it is more beneficial to carry out all the work over one year for tax reasons. If there is but little upkeep work to be done, then choose the flat-rate tax deduction to maximize the amount you have the right to deduct from your tax bill.
On the other hand, large-scale renovation work should be scheduled over several years. This ensures your taxable income, for several tax years to come, does not reach the next level and is not taxed at a higher rate. Overall, you will pay less tax this way than if you deducted everything over a single tax year.