We all know that owning a rental property is more than just finding the perfect tenant. If you own a rental property portfolio that provides an income, you’d know that it’s much like owning a business. This means that there are tax implications and dues that need to be paid to the South Africa Revenue Service (SARS). While all taxable income must reflect on your return, there are ways to reduce the pressure on your back pockets.

Rental Income Tax Deductions for Landlords

As a landlord, you’re required to declare the total amount of rental income received as part of your taxable income. However, certain deductions can be made, such as a non-capital expense. Incurring certain expenses while letting out your property is inevitable when dealing with rentals. Luckily, if you deduct these non-capital expenses from your tax return, it’ll reduce your taxable income and possibly put you in a lower tax bracket, which will be to your benefit.

Examples of non-capital expenses to offset against rental income:

  • Rates, taxes, security, and property levies
  • Interest paid on the home loan (if applicable)
  • Advertising costs of marketing the property
  • Rental agent’s commission or fees for securing a tenant
  • Insurance (only homeowner’s insurance and not insurance for household contents)
  • Garden services (if applicable)
  • Repairs in respect of the area let (excluding improvements to the property)

Do not deduct expenses of a capital nature

It’s important to remember that you can’t deduct any expenses of a capital nature. This includes any expenses incurred while renovating or adding on to your property. If your tenant has moved out of the property and you decide to make repairs to the home to sell it, you can’t deduct these expenses as they didn’t happen while the tenant occupied your property.

What happens when landlords make a net rental loss?

If you find that the total deductions exceed the rental income received and you wish to declare a net rental loss, the Income Tax Act contains a ring-fencing provision that may come into play depending on the circumstances. If the provision does apply, you will not be able to offset your rental losses against income received from other sources.

Reminder: tax evasion is illegal

It’s in your best interest to remember that evading paying tax on your rental income will get you into deep financial water. Rental agents are obligated to provide SARS with a record of the rental income received and paid over to landlords. As a result, it’s very easy for SARS to find any discrepancies in a landlord’s tax return. If you’re found guilty of tax evasion after an audit, you could be facing a hefty penalty or worse – imprisonment.

When in doubt, reach out to a tax consultant

Trying to figure out tax deductibles can be a difficult and overwhelming task. If you’re ever unsure about your tax return, it’s best to consult with a professional financial adviser or tax consultant who can guide you through the process. Those who are just starting their rental portfolio can reach out to real estate professional who can help you take the first step in your property search for the perfect investment.

Morne Prinsloo | RE/MAX Masters | Real estate professional in Roodepoort
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