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Think about the tax implications of renting out your home

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The Property Poser experts have received a rather interesting tax-related query from a reader who rents out his home to officers from the diplomatic services from time to time.

When their property is occupied, the reader and his wife go and live on a camping site, which is admittedly less comfortable than their own home but far less expensive. In this way they are managing to save a bit of money for their later years.

There is still a small bond on the property and while they know that they can deduct the interest portion of this bond from the rental income, the reader would like to know whether they can deduct the expenses incurred from their camping expeditions as these are “necessary costs” in renting out their property.

When calculating the tax liability owed to the South African Revenue Service, all income must be declared, says Sean Radue of Radue Attorneys in Port Elizabeth.

“Thereafter, certain expenses that are specifically mentioned in the Income Tax Act and other general expenses incurred in producing the income may be deducted.”

As a general rule, Radue says expenses that were incurred in improving the property cannot be deducted as these are of a capital nature.

“But should they wish to sell the property one day, these expenses could be taken into account when determining any potential capital gains.”

Radue says the reader correctly mentions that the interest portion of his bond payment could be claimed as a deduction.

“The fact that our reader and his wife choose to rent out their property and in the process have to find alternative accommodation doesn’t necessarily mean that these accommodation expenses can be claimed.”

Radue says the more relevant deductible expenses would be expenses directly related to the rental property.

“These include commissions paid to rental agents and electricity, water and rates or levies over the period that the property was let.”

Expenses related to maintaining the property, such as fixing the roof or a leaking gutter, may also rank for deduction from taxable income, says Radue.

“Keep in mind that a consequence of renting out one’s primary residence is that it will affect the capital gains tax exemption.”

Once the property is turned into a “business”, this exemption falls away completely or proportionately for the time that it was rented out, says Radue.

“Any expenses related to the improvement of the property, such as renovating the kitchen or bathroom for example, may however be used to reduce any potential capital gain.”

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Fullstop

Full Stop Communications is a public relations consultancy in Port Elizabeth in the Eastern Cape of South Africa focusing on media relations and copywriting. We drive regional and national media campaigns in a number of fields, most notably in the property, legal and sports arenas. We also specialise in media monitoring, ghostwriting, editing, translation and advertising. See more articles by Full Stop.