Staff author
Rental income and deductions: What landlords need to file correctly
Rental income is fully taxable and must be declared on your return. However, Section 11(a) read with Section 23(g) of the Income Tax Act allows landlords to deduct a wide array of expenses directly related to maintaining and letting the property.
How it works
Common deductible expenses include levies, municipal rates, property insurance, letting agent fees, and bond interest. The capital portion of a bond repayment is never deductible. Taxpayers frequently face SARS penalties for misclassifying repairs and improvements, as the tax treatment for each is completely different.
Specific Scenarios
* Scenario 1: General maintenance. You hire a painter to repaint peeling walls between tenants and a plumber to fix a leaking tap. These are standard repairs that restore the property to the original condition, making them fully deductible in the current tax year.
* Scenario 2: Major upgrades. You gut the kitchen and install premium granite countertops and new cabinets to justify charging higher rent. This is a capital improvement. It cannot be deducted now; instead, it is added to the base cost of the property for Capital Gains Tax purposes when you sell.
* Scenario 3: Vacant periods. The property sits empty for three months while you search for a tenant. You can still claim the municipal rates and bond interest incurred during those three months, provided you can prove you were actively attempting to let the property.
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When you are not eligible
If you rent out a room in your house to a relative at a significantly reduced, non-market rate, SARS may ring-fence your expenses. You also cannot claim deductions if the property is purely for personal holiday use and not genuinely available for rent.
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Disclaimer:This article is for informational purposes only and does not constitute financial or tax advice, and is not exhaustive. Tax laws are complex and subject to change. We strongly recommend consulting with our registered tax practitioner to address your specific circumstances.