Property sales


Posted by: David | 2014/10/03 13:48

What are the personal tax implications of renting out a cottage on my property.

I have built a cottage on my property to do holiday rents. My bond had been brought down to nil but had 5 years to run and so I drew back on pre-paid monies to finance the build. Can I deduct the costs of the monthly bond payments from the rental for tax declaration purposes?

expert answer

Posted by: Carol Reynolds | 2014/10/04 09:13
Thank you for the question. It is standard for property costs to be set off against rental income to reduce tax liability. Indeed, many investors gear their properties so that they have a tax saving by ensuring that their rental income falls just short of their monthly bond installments. Since the cottage is situated on your property and hence covered by the bond, you can deduct a portion of the bond installment in order to reduce your tax on your rental income. It is not as simple as owning a flat as an investment and renting this out, because in your case, there are two dwellings on the property and one is used as an investment, whilst the main dwelling is used as your residence. Thus, SARS will expect you to use an apportionment method, whereby you apportion some of the bond repayments to the cottage and the balance to your home. You will definitely be able to apportion some of the monthly costs to the cottage, however, don't bank on being able to use the full installment, because the property has two dwellings on it under one title. It is best to speak to your accountant as he will be able to ascertain the full extent of your tax liability and the best methods to reduce same. 

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