If you have investment property or are thinking about purchasing property for investment purposes, take note of the tax deductions applicable.
Due to the recession or economic downturn, it has brought an end to the fast growing rate the property market has experienced over the last few years. However property, as with shares, is still one of your best long-term investments out there.
So before you discuss the tax deductions applicable to property, let’s first discuss rental income as a form of income on your tax form. When you rent out property to a tenant, SARS regards it as income received and will be titled as ‘gross income’ on your tax form, which is basically regarded as a salary. So don’t leave out rental income on your tax form, SARS will pick it up.
You can deduct expenses incurred to generate rental income like water and electricity, rates and taxes, agent fees, insurance and body corporate levies. You can subtract this amount from your rental income. But always make sure you stipulate these expenses in the rental contract, as this will indicate these expenses were part of the lease.
SARS considers repairs to your investment property as tax deductible but not improvements made to the property. The rule is: if you incurred expenses to retain the property/maintain it to its original condition, it is tax deductible. But if improvements are made to upgrade the property, it is not tax deductible.
If a bond covers your investment property, the interest payable to the bank is tax deductible. The capital part however is not. You can request an amortisation table from your bank that will indicate which part of your instalment is allocated to interest.