Maximising tax deductions on rental properties: A guide for landlords
What is rental income?
Rental income is any money received from letting out residential properties such as holiday homes, guesthouses, or even a room in your main residence. This income is subject to income tax and must be declared to SARS. However, there are various allowable deductions that can reduce your taxable rental income, helping you save.
How is tax calculated on rental income?
To assess your annual tax liability, add the profit you make from rental income to any other income you have. SARS will calculate your rental profit by subtracting any costs you paid to maintain your property from the amount you were paid in rent. If a tenant breaks the conditions of the lease (for example, by not repairing damage that they caused) and as a result you keep their deposit, the deposit will also be included in your taxable income.
If your expenses are more than your rental income, you can use the loss to offset other income, on condition that it’s not in a category restricted by SARS. You’ll also need to prove that you’re genuinely renting out your property for income.
Tax-deductible expenses for rental properties
To reduce the tax you pay on rental income, you can claim the following permissible expenses:
1. Bond interest - If your rental property is financed through a bond, you can deduct the interest portion of your bond repayments. This is one of the most significant deductions available to landlords.
2. Rates and Taxes - Municipal rates and property taxes are also deductible. These include charges such as electricity, water, and refuse removal.
3. Advertising costs - If you’ve incurred expenses promoting your rental property to prospective tenants, you can deduct these advertising costs.
4. Property management and agency fees - If you use a rental agent to manage your property or find tenants, you can deduct the fees they charge.
5. Insurance - While tenants are responsible for their own contents insurance, you can deduct the cost of your homeowner’s insurance on the rental property.
6. Repairs and maintenance - Only repairs that restore the property to its original condition qualify for tax deductions. This can include fixing plumbing issues, repainting, or repairing damage caused by tenants. Note that renovations or improvements are not deductible but can reduce your capital gains tax when you sell the property.
7. Garden services - If you maintain the garden of the rental property yourself, you can deduct the associated costs.
8. Security costs - Expenses related to alarm systems, security gates, and armed response services are also tax-deductible.
9. Levies - For sectional title properties or homes in estate developments, levies are deductible.
Here is an example of how to deduct expenses:
Damian lets two rooms within his main home on a bed-and-breakfast basis. Each bedroom has an en-suite bathroom. The total area of the dwelling is 420 square metres, while the area which is let, is 120 square metres. The area let expressed as a percentage of the total area of the dwelling, is 28.57% (120/420 x 100). Damian’s total rental income for the 2024 year of assessment was R50 000:
| Expense Category | Total Expense (ZAR) | Expense Apportioned to Area Rented (28.57%) |
|---|---|---|
| Rates and Taxes | R9,600 | R2,743 |
| Garden Services | R10,000 | R2,857 |
| Security | R2,000 | R571 |
| Interest on Bond | R60,000 | R17,142 |
| Advertisements (Note 1) | R1,000 | R1,000 |
| Insurance | R6,000 | R1,714 |
| Improvements to Garage (Note 2) | R5,000 | R0 (Not Allowed) |
| Repairs (Water Damaged Carpets) (Note 3) | R12,000 | R12,000 |
| Total Expenses | R105,600 | R38,027 |
Notes:
- Advertisements: Incurred 100% in the production of rental income, thus allowed in full.
- Improvements to Garage: Capital expense, not deductible.
- Repairs (Water Damaged Carpets): Allowed in full, as it directly relates to the area let.
In this example, the total deductible expenses are R38,027, leaving a taxable rental income of R11,973 (R50,000 rental income minus R38,027 expenses).
What expenses are not deductible?
It's important to differentiate between repairs and improvements. While repairs are tax-deductible, improvements like adding a new room or renovating the kitchen are capital expenses. These can’t be claimed against rental income but will reduce your capital gains tax when you sell the property. Other non-deductible expenses include bond and transfer fees, which also come into play during a sale.
Can expenses exceed rental income?
If your rental expenses exceed your rental income, the loss can be used to offset your other income, provided that SARS does not "ring-fence" the loss. This is especially useful in cases where you’ve incurred high expenses but anticipate higher profits in the future.
Additional tax benefits: depreciating furniture and solar systems
If you rent out a furnished property, you can claim depreciation on the furniture over time due to wear and tear. This deduction allows you to spread the cost of replacing the furniture over several years. Similarly, if you’ve installed solar power, you can claim depreciation on the batteries, which are often the most expensive part of the system. SARS allows you to write off the cost over five years for batteries priced over R7,000.
Rental properties are a solid investment, but minimizing your tax liability is crucial to maximizing your returns. Knowing what you can and cannot deduct allows you to keep more of your rental income. While these tips can help, it’s always a good idea to consult with a tax professional to ensure you’re claiming all legitimate deductions and complying with the law.
By effectively managing your rental property tax deductions, you can enhance your profitability while ensuring long-term success as a landlord.
