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Any income earned from a rental property should be added to other taxable income earned during the year when filing a tax return.
The taxable amount may be reduced if the landlord has incurred expenses during the period that the property was let.
These deductions are limited to expenses that were incurred in the production of the rental income.
Expenses of a capital nature may not be deducted but may increase the base costs of the property and influence the determination of any capital gains when the property is eventually sold.
Maintenance and repair costs are not to be confused with improvement costs, which are capital expenses and therefore not deductible.
Where only a portion of the property is rented out, the expenses must be calculated proportionately.
The area that is let must be divided by the total area of the dwelling, which includes garages and outbuildings.
In the current instance, the reader mentions that she has received R54 000 in annual rental. This amount must therefore be included in her taxable income.
She further mentions that she paid interest (R20 993), bond instalments (R43 200), rates and taxes (R3 000), insurance (R3 600) and maintenance (R2 400).
As we have already mentioned, only the interest portion of the bond repayment may be deducted and not the full repayment amount.
She may therefore deduct the R20 993, but not the R43 200.
Rates and taxes on the property are allowed deductions and if the insurance payment relates to homeowners’ insurance and not household contents, it may also be deducted.
Maintenance costs that relate to necessary repairs will serve to reduce her taxable amount.
If expenses exceed the rental income, the loss should be available to be offset against other income earned by the homeowner, provided that the losses have not been ‘ring-fenced’.
Once all the deductions have been determined and the total income calculated, the usual rebates based on the taxpayer’s age are applied and the taxpayer will pay tax according to her marginal rate of tax applicable for the relevant tax year.
Where the reader is unsure about the proper application of this information or where other factors may influence the calculation, she is strongly advised to seek advice from a tax expert or accountant to avoid falling foul of legislative requirements.
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