Debt interest deduction massively restricted - what's behind the change to the imputed rental value system

There is currently a lot to read and hear about the federal vote on September 28, 2025 regarding the planned change to the imputed rental value system: The imputed rental value is to be abolished; in return, there will be restrictions on tax deductions and the cantons will be given the option of introducing a property tax for predominantly owner-occupied second properties.

With this newsletter, we would like to draw attention to a point that is usually neglected in the public debate - but which can have a major impact on a far more significant group of taxpayers than just homeowners: the completely redesigned and, in most cases, significantly restricted debt interest deduction.

1. what will change specifically if the proposal is accepted?

• Imputed rental value: no longer applies to owner-occupied residential property (primary and secondary residences).
• Maintenance deductions: in future, maintenance costs will no longer be deductible for direct federal tax purposes (with the exception of monument protection); cantonal energy/environmental deductions will be possible until 2050 at the latest.
• Restructuring of the debt interest deduction: see Chapter 2.
• First-time buyer deduction: Anyone buying a permanently owner-occupied property for the first time can deduct (additional) mortgage interest for ten years (max. CHF 10,000 per year for married couples, CHF 5,000 for individuals; the deduction decreases by 10% each year on a straight-line basis).

• Property tax: cantons may tax secondary properties separately

‍2Hidden centerpiece: Pro rata debt interest deduction

The real explosive force of the system change lies not in the abolition of the imputed rental value, but in the redefinition of the debt interest deduction. This point is often overlooked in the public debate - but it is a substantial change with consequences for all taxpayers.

In future, private debt interest will no longer be deductible without further ado, but will only be deductible within narrow limits and according to a quota (in proportion to the share of rented property in total assets). If the property is not rented out, the debt interest deduction is no longer applicable - even for mortgages on your own home, Lombard or consumer loans. The previous rule (CHF 50,000 plus investment income) no longer applies.

The following example shows the substantial impact the reorganization of the debt interest deduction can have for all taxpayers:

Mrs. X lives in the Canton of Berne and, as an entrepreneur, has total assets of CHF 5 million (investment property of CHF 1 million, securities of CHF 2 million and company tax value of CHF 2 million). The ratio of immovable assets to total assets is 20%.

The net income less all general deductions amounts to a total of CHF 240,000 (salary income, rental income, dividends from listed securities and a dividend from his own company). The mortgage interest amounts to CHF 20,000.

Now only 20% of the debt interest, i.e. CHF 4,000 instead of the previous CHF 20,000, is deductible.

This results in a CHF 16,000 higher (annual) income, which means that an annual additional income tax of around CHF 6'500 is incurred. In the canton of Berne, depending on the constellation, wealth tax also increases by wealth tax by up to CHF 4,000 per year. ‍

‍Conclusion

Although the pending system change eliminates the controversial notional income, it also brings far-reaching changes to the debt interest deduction. These affect not only homeowners, but all taxpayers who have debt interest in any form. It is therefore worth taking a differentiated look at the bill and carefully examining the effects (on your own situation) - before a decision is made at the ballot box on September 28, 2025.