Practical example of how to deduct expenses on Rental Income

Expenses must be apportioned where less than 100% of the property is rented out. The area which is let must be divided by the total area of the dwelling which includes garages and outbuildings.

Let’s look at the following example: Ms Jones lets two rooms within her main home on a bed-and-breakfast basis. Each bedroom has its own en-suite bathroom.  The total area of the house (including garages and outbuildings) 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 house, is 28.57% (120/420 x 100). Ms Jones’ total rental income for the 2012 tax year was R50 000:

penses Rand Expenses apportioned to the area rented (28.75%)
Rates and taxes  R            9 600  R            2 743
Garden services  R          10 000  R            2 857
Security  R            2 000  R               571
Interest on bond  R          60 000  R           17 142
Advertisements (Note1)  R            1 000  R            1 000
Insurance  R            6 000  R            1 714
Improvements to garage (Note2)  R            5 000  R                   –
Repairs in respect of the area let – water damaged carpets (Note3)  R          12 000  R         12 000
Total Expenses  R       105 600  R         38 027

Advertisements incurred 100% in production of rental income.
Improvements to garage are capital/private expenses (not incurred in production of rental income) therefore no expenses allowed as a deduction.
Replacement of water damaged carpets is incurred in production of rental income (therefore allowed as a deduction).
Nett expenses to be set off against rental income is, R50 000 less R38 027= R11 972.68 (rental profit).
Source code for rental profit is 4210 and rental loss is 4211.
Profit/loss to be split 50:50 when married in community of property. Note that the full amount after expenses must be reflected.  SARS will programmatically apportion 50:50.