Additional Deductions for Property Dealers Under Zurich’s Real Estate Gains Tax—According to the Zurich Administrative Court, an ongoing waiver of gains taxes is required

In its ruling of May 6, 2026, the Administrative Court of the Canton of Zurich provided a clarification that is significant for the practical application of Zurich’s real estate gains tax. The central issue was whether a company classified as a real estate dealer can first claim expenses such as interest on debt, maintenance costs, and direct taxes against income tax and later, at the time of sale, treat them as investment costs for real estate gains tax purposes through a “re-inclusion.” However, the court’s decision is not yet final.

After the status of real estate agent had been confirmed in the first round of litigation all the way up to the Federal Supreme Court, the only issue remaining in the second round of litigation was the deductibility of the expenses.

Pursuant to § 221(2) of the ZH Income Tax Act (StG ZH), natural and legal persons who deal in real estate may claim additional expenses related to the real estate, provided they have expressly waived the right to have such expenses taken into account for income or profit tax purposes.

Although double counting of expenses (for both income tax and real estate gains tax) is ruled out for companies under the accrual basis of accounting (for details, see: Sereina Mader & Urs Schüpfer, in: EXPERT FOCUS 9/2015), the court holds that such expenses must be waived on an ongoing basis. The court interprets the wording such that “on an ongoing basis” is explicitly implied (even though the term “ongoing” does not actually appear in the statutory text). This means that, in the court’s view, anyone who has already claimed the expenses for income tax purposes cannot subsequently “waive” this deduction and “reclaim” the expenses.

The Administrative Court thus rejects the taxpayer’s argument regarding a retroactive “re-contribution” (similar to what is provided for, for example, with land registry fees incurred at the time of purchase, which are deductible under § 221(1) of the Zurich Tax Act (StG ZH)—though they may have already been claimed for income tax purposes at the time of purchase).

In practice , this means that the decision regarding whether interest on debt, taxes, and other expenses under § 221(2) of the Tax Act (StG) should be taken into account on an ongoing basis for income tax or later for real estate gains tax must be made early on and properly documented. Consequently, if a real estate dealer wishes to claim these expenses later for real estate gains tax purposes, they must continuously offset the expenses in the tax balance sheet (since these expenses are not capitalizable under commercial law).

The question remains as to how to handle cases in which a taxpayer actually waives the profit tax deduction but is later denied real estate dealer status. Although the court mentions the theoretical possibility of an appeal, it refrains from addressing the issue in depth. As a result, legal uncertainty persists in practice.

The ruling is not yet final and has been appealed to the Federal Supreme Court.