Renovation: Value-Enhancing or Value-Preserving?

When you renovate, two follow-up questions arise sooner or later: are you allowed to raise the rent, and can you deduct the costs from your taxes? Both answers depend on the same calculation – but on two different allocations with opposite consequences. This article sets out the dividing line itself; for the procedure in your own case, it points to the more detailed articles below.

One Calculation, Two Authorities

Rental law and tax law both demand the same basic distinction from the same renovation calculation: which part of the work merely preserved the existing condition, and which part improved it? Only the improving part – the “value-enhancing” (wertvermehrend) part – counts as an added benefit (Mehrleistung) and may be passed on to the rent (Art. 269a lit. b OR; Art. 14 Abs. 3 VMWG). Only the preserving part counts as maintenance and is deductible for direct federal tax purposes; value-enhancing expenditure is explicitly not deductible there (Art. 32 Abs. 2 DBG; Art. 34 lit. d DBG). Same allocation, opposite consequences.

Part of the Renovation	Rental Law	Tax Law
value-preserving (werterhaltend / maintenance)	not chargeable to rent	deductible — Art. 32 Abs. 2 DBG
value-enhancing (wertvermehrend / added benefit)	chargeable to rent — Art. 269a lit. b OR, Art. 14 Abs. 3 VMWG	not deductible — Art. 34 lit. d DBG
energy-related improvement	chargeable to rent — Art. 14 Abs. 2 VMWG	deductible — Art. 32 Abs. 2 zweiter Satz DBG, Art. 1 Liegenschaftskostenverordnung

One exception belongs in every calculation: energy-related improvements to the building envelope, building technology, or renewable energy systems are explicitly treated under rental law as an added benefit (Mehrleistung), and are therefore chargeable to rent (Art. 14 Abs. 2 VMWG), while at the same time being treated for tax purposes as equivalent to maintenance costs, and thus deductible (Art. 32 Abs. 2 zweiter Satz DBG; Art. 1 Liegenschaftskostenverordnung). No either/or applies here: the same measure can justify a rent increase and be deductible – less any subsidies received.

In both procedures, the duty to present and substantiate the facts lies with the property owners, not with the authority (Merkblatt 5 «Grundstückkosten», Steuerverwaltung Kanton Bern, Ziff. 4). Anyone who does not demand the split before the first invoice must later reconstruct it against this burden of proof – possible, but considerably harder (Art. 14 Abs. 5 VMWG; Merkblatt 5 Ziff. 4).

Three Practical Steps

Request a separate invoice. For tax purposes, only what is clearly separable counts: for completed work with a detailed partial invoice, the amount can be claimed; payments on account cannot (Merkblatt 5 Ziff. 3). Anyone who bills this way is also billing concretely under rental law – and then the flat rate no longer applies: for comprehensive renovations, “as a rule” 50 to 70 percent of the costs count as value-enhancing (Art. 14 Abs. 1 VMWG), but only for as long as the individual items of work cannot be concretely allocated. If they can be allocated, the flat-rate approach no longer applies, and only the actual added benefit counts (Bundesgericht, Urteil 4A_501/2010 vom 19. Januar 2011, E. 3).

Give proper notice of the rent increase. Landlords may only give notice once the work has been carried out and the relevant supporting documents are available; for larger projects, staggered increases are permitted in line with payments already made (Art. 14 Abs. 5 VMWG). Notice is given on the form approved by the canton, at least ten days before the start of the notice period, with a clear justification; where there are several grounds, each must be stated as a separate amount – otherwise the increase is void (Art. 269d Abs. 1 und 2 OR; Art. 19 Abs. 1 lit. a VMWG). If an entitled adjustment is not claimed in full, the reservation must be recorded in francs or as a percentage (Art. 18 VMWG).

Deduct subsidies on both sides. Under rental law, subsidies must be deducted from the amount of the added benefit (Mehrleistung) (Art. 14 Abs. 3bis VMWG); for tax purposes, only the self-funded portion counts for subsidised measures (Art. 1 Abs. 2 Liegenschaftskostenverordnung). The form must also state whether subsidies were received for the added benefit (Art. 19 Abs. 1 lit. a Ziff. 5 VMWG).

The Rent Increase Check reviews the deadlines and forms for your specific case. A concrete application of this dividing line – costs and rent after a heating system replacement – is explored further in the article on Heating System Renovation.

What If There Is a Dispute?

In a dispute, a rent increase is not decided by the property management but by the conciliation authority – if the tenants contest it within 30 days (Art. 270b Abs. 1 OR). For tax purposes, the matter is decided by the tax assessment, which can request copies of invoices and further supporting documents if needed (Merkblatt 5 Ziff. 4). And every canton maintains its own allocation catalogue: Bern with Merkblatt 5, Zurich with ZStB 30.3 – both with the same quota classes, but as separate cantonal sets of rules.

This article does not replace either procedure. It provides the preparatory work that both procedures require: the split documented, the invoice requested separately, the form correct, the deadline met, every justification stated as a separate amount.

Cantonal Catalogues Compared

Two official catalogues show the same structure in different cantonal versions:

Canton	Basis	Quota Classes
Bern	Merkblatt 5 «Grundstückkosten», Steuerverwaltung Kanton Bern	1/1 · 2/3 · 1/2 · –
Zurich	ZStB 30.3, Kantonales Steueramt Zürich	1/1 · 2/3 · 1/2 · –

All references cited in this article – statutory provisions, fact sheets, the Federal Supreme Court ruling – are collected under Sources.

If you would like help classifying your own renovation and considering the management of the property at the same time: Request a quote.

All figures and legal references in this article are disclosed and linked → Sources.