We are now entering a new financial year, it is now a good time to start thinking about your tax savings and what tax deductions you can legitimately claim.
“And in that regard, one of the best investments to have is a rental property because it will not only increase the value of your assets, but should also allow you to claim for certain expenses incurred in connection with owning and maintaining the property,” said Gerhard Kotze, MD of RealNet.
Usually, if you are a private property owner (rather than a company that is in the business of owning and leasing properties) SARS will allow you to obtain the following deductions against the rental that you receive:
- If you property is bonded, then you get deductions on the interest portion of the monthly bond repayments.
- The municipal rates & taxes, the levies and other associated costs (garden service, etc).
- The property insurance premiums.
- Any real estate agent’s commission paid for finding tenants and helping you manage the property.
- Advertising costs for the property.
- Depreciation of any of your furniture and appliances within the property, at 15% per year on the depreciated value and bank charges.
Kotze said that SARS may also allow you to deduct renovation costs incurred, however this process is not as straightforward.
The following is how SARS views renovations. If the renovations done are improvements, such as a new bathroom and new tiles, then SARS will most probably regard these as capital in nature and not tax deductible against the rental income received. The trick here is to keep a record of these costs and will need to be taken into account against any capital gain when the property is sold.
If the renovations done were ’repairs’ such as repainting and the replacement of old carpets, then these renovations will most likely fall under maintenance and can be fully deductible against the rental income received.
Kotze said that it is also important to honestly declare all of the income earned before you start listing deductions. “If SARS discovers that you have under-declared the rent received, or failed to declare any other income, you will be liable for penalties that could well exceed any deductions applicable to your rental property.”