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Rental income and tax - how does it work?
The ability to earn a passive income through property is a wonderful opportunity that can add significantly to your monthly monetary needs. A rental property that is well positioned, in demand and well maintained is an excellent asset and a sound investment. But in terms of rental income and income tax, how exactly does it work?

Craig Hutchison, CEO of Engel & Völkers Southern Africa explains that if you rent out a property and receive a rental income, it will be subject to tax.

“Rent received from the letting of residential accommodation such as a holiday home, cottage on your property, sub-renting part of your house or a townhouse will all be subject to being taxed. The rental income is added to any other taxable income you receive, such as a monthly salary,” explains Hutchison.

Can the taxable income be reduced?

Yes, the taxable income accrued from renting out a property can be reduced as expenses are always incurred.

Expenses that may be deducted from rental income include:

- Bond interest
- Rates and taxes
- Property levies
- Estate agency fees
- Homeowners insurance (excluding household contents insurance)
- Garden services
- Repairs
- Security

Which expenses are not allowed?

It must be noted that only expenses related to the rental of the property may be deducted. Capital and private expenses won’t be considered as a deduction by SARS.

“While maintenance and repairs expenses can be passed, improvement costs are a capital expense and will be included in the base cost of the property. When the property is sold, the improvement costs will be an expense that will effectively reduce the capital gain, thus reducing the capital gains tax payable to SARS,” explains Hutchison.

If expenses exceed rental income

There are times when, for one reason or another, the expenses accrued from leasing a property exceed the income. The loss should then be off-set against other income received by you the owner. When leasing out a property it is always best to consult with an accountant or tax specialist to fully understand what is deductible, how much tax will essentially be paid over the annual lease period, and the like. This will provide a realistic view of your net income.

“Income tax aside, the leasing of a residential property, if managed effectively, is a viable and financially sound way of adding to your monthly income stream. At the same time, you are the owner of an asset that will appreciate in value over time and will pay dividends as the years go by,” says Hutchison.

Read the original article here
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8A Gert Kotze Street,
Brackenfell,
Western Cape,
South Africa, 7560
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021 982 0965
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021 982 2509
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23 A Plein Street,
Grand Central,
Eerste River,
Western Cape,
7100

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021 902 0246

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021 982 2509


ABOUT FPS PROPERTIES



Founded by Freddie P. Steyn in 2015, FPS Properties is one of the newest estate agencies in the Northern Suburbs of Cape Town. We are professional, dynamic and fully accredited estate agency. We strive to give all our clients professional and cost effective services to ensure that your property is rented or sold within the amount of time.

FPS Properties is supported by FPS Attorneys who will ensure that all transactions are correctly executed and furthermore will gladly assist with any and all legal queries to give you the added peace of mind.

Our agents are friendly and efficient and will gladly do free property valuations and provide sound property advice.

In short FPS Properties’ philosophy is simple… that by working closely with the client and becoming attuned to their business ethos, we can deliver pro-active and effective solutions thus creating ~ ”Clients for Life”

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