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Rental properties are good investments for tax savings

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The start of a new financial year is a good time to be thinking about tax savings, and in this regard, one of the best investments to have is a rental property, says Gerhard Kotzé, managing director of the RealNet.

Not only will such a property increase the value of your assets, it should also allow you to claim for certain expenses incurred in connection with owning and maintaining the property.

Private owners are allowed to claim the following deductions against the rental income received, he says: 

  • If your property is bonded, the interest portion of the monthly bond repayments.
  • Municipal rates and taxes and sectional title or estate levies.
  • Garden service costs.
  • Property insurance premiums (HOC).
  • Any agent’s commission paid for finding tenants and managing the property.
  • Advertising costs.
  • Depreciation on any furniture and appliances, at 15% a year on the depreciated value.
  • Bank charges.

The SA Revenue Service may also allow rental property owners to deduct some renovation costs, although these are not as straightforward.

“If the renovations are improvements, such as new cupboards and tiles in the kitchen, they will probably be regarded as capital in nature and not tax deductible against rental income received. You would then need to keep a record of these costs to be taken into account against any capital gain when the property is sold,” Kotzé says.

“If, however, the renovations were ‘repairs’, such as repainting and the replacement of old carpets, they will most likely fall under the maintenance heading and be fully deductible against the rental income received.”

Owners should honestly declare all income earned before they began listing deductions, he emphasises.

“If SARS discovers you have under-declared the rent received or failed to declare any other income, you will be liable for penalties that could exceed deductions applicable to your rental property.

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