Tax advantages and disadvantages of buying from a foreclosure auction

When buying a property in Switzerland at auction, one often saves not only on the purchase price but also benefits from interesting tax effects. From the (partial) exemption from property transfer tax to optimized deductions on interest expenses, there are numerous advantages, but there are also a few, yet important pitfalls. This article details both sides so that your tax compass points accurately towards profit.

---

1 Three Tax Levels You Need to Know

Level	Typical Taxes / Fees	Auction Specifics
Federal	Income & Wealth Tax (Imputed Rental Value, Interest Expenses)	Unchanged, but base values are often lower
Canton	Property Transfer Tax, Capital Gains Tax, Wealth Tax, possibly Property Tax	Transfer taxes partially waived
Municipality	Rates on Cantonal Taxes, Levies	Regulates notifications & deadlines with the enforcement office

2 Property Transfer Tax: Advantage Meets Cantonal Boundary

2.1 Exemption or Reduction

In several cantons, the property transfer tax is completely waived (e.g., Zurich, Zug, Schwyz, Uri, Glarus, Schaffhausen). In others, it is halved or calculated based on the hammer price instead of the market value, both of which significantly lower your burden.

"Those bidding in a zero-tax canton like Zurich save up to 3.3% of the purchase price, a hidden return lever that has a strong effect, especially on million-dollar properties."

2.2 Calculation Example

Hammer Price            CHF 1,200,000
Property Transfer Tax 1.5% Canton A   =  CHF   18,000
Property Transfer Tax 0% Canton ZH    =  CHF        0
Immediate Advantage                   CHF   18,000

3 Capital Gains Tax: Benefit Today, Obligation Tomorrow

• When Buying: The tax is always owed by the seller (debtor), not the buyer, so you start tax-free.
• Upon Selling Later: A lower hammer price means a lower acquisition cost → your future capital gains tax could be higher.
• Avoid Progression Trap: Through holding duration (discounts starting from 5 years, often 50% after 20 years) or tax-neutral replacement procurement.

4 Imputed Rental Value & Interest Deduction, the Ongoing Topic

4.1 Low Tax Value

Many cantons initially set the wealth tax value at around 70% of the hammer price. This reduces wealth tax and the cantonal imputed rental value while the federal deduction (20%) still applies.

4.2 Full Deduction of Interest

Mortgage and personal loan interest are deductible up to the amount of capital income. Particularly in the early years, the interest component is high, providing a liquidity advantage for bidders.

5 Other Tax Aspects at a Glance

• Value Added Tax: Only relevant for opted commercial properties, the enforcement office must clarify within 10 days after the award whether VAT is applicable.
• Property Tax / Leasehold Fee: Usually continues proportionally from the award date, no special discount, but also no additional burden.
• Payment Deadline & Default Interest: The enforcement office may grant a maximum of 20 days for payment, late payment incurs a 5% default interest, which is not tax-deductible.

6 Tax Advantages and Disadvantages at a Glance

Advantages	Disadvantages / Limitations
Property transfer tax reduced or waived (cantonal) → immediate savings	Full burden in "high-tax" cantons remains
Interest deduction affects high initial interest	Interest deduction limited to capital income
Low wealth tax value & imputed rental value	Higher capital gains tax upon later sale
Renovation/maintenance costs deductible (value-preserving)	Value-increasing investments increase future profit tax
No VAT on private properties	VAT complexity on opted commercial properties

7 Practical Example: Lisa Calculates

In 2025, Lisa bids on a semi-detached house in Bern for CHF 950,000 (market value CHF 1.2 million). The cantonal property transfer tax is 1.8%, but only on the hammer price, saving her CHF 4,500 immediately. Her wealth tax value is CHF 665,000, and the annual tax savings compared to a purchase at market value amount to around CHF 350. After five years, Lisa wants to sell: Since the low acquisition price is considered the basis, higher capital gains tax will apply at the same market value, so she plans to hold for up to 10 years to benefit from the holding duration discounts.

8 Tax Checklist for Bidders

1. Check cantonal regulations for property transfer & property tax.
2. Incorporate estimated/hammer price into wealth planning.
3. Structure mortgage so that interest deduction is maximally effective.
4. Clearly distinguish between value-preserving versus value-increasing renovations.
5. Strategically plan holding duration (discounts on capital gains tax).

9 FAQ

Can I reclaim the property transfer tax afterwards?

No. Once paid, there is no refund. Therefore, check before the auction if exemptions apply.

What happens if I sell again within two years?

Most cantons have progression: The shorter the holding period, the higher the tax rate on the profit, in extreme cases up to 50%.

Can I claim losses to reduce taxes?

No. Property losses are not recognized for tax purposes and cannot be offset against other income.

10 Conclusion: Optimizing Taxes for Your Hammer Deal with Knowledge

Auctions not only offer price advantages but also tax discounts: low transfer taxes, optimized interest deductions, and a favorable wealth tax value. However, those who do not pay attention to the later capital gains tax or bid in a high-tax canton forfeit potential. Educate yourself early, take advantage of cantonal exemptions, and make your visit to the enforcement office feel like a home game for tax purposes.