The tax con­se­quences of your home loan

The Citizen (KZN) - - Personal Finance - De Wet de Vil­liers Your pri­mary res­i­dence SA Rev­enue Ser­vice Pri­mary Res­i­dence Ex­clu­sion Buy-to-let prop­erty

To cal­cu­late the tax con­se­quences linked to home loans, first dif­fer­en­ti­ate be­tween your pri­mary res­i­dence (the prop­erty you live in) and a buy-to-let prop­erty.

You’re gen­er­ally not al­lowed any tax de­duc­tions for the in­ter­est por­tion of the home loan re­pay­ment.

If, how­ever, you have a home of­fice, you could po­ten­tially deduct a por­tion of the in­ter­est re­pay­ment.

Since only a por­tion of the premises is used for work, the fol­low­ing al­lo­ca­tion can be made: A/B x to­tal costs, where

A in m² is the home of­fice area, equipped and used reg­u­larly and ex­clu­sively for trade; and

B is the to­tal area in m² of the res­i­dence, in­clud­ing any out­build­ings and the area used for trade.

Home­own­ers can ben­e­fit from a Pri­mary Res­i­dence Ex­clu­sion pro­vid­ing: a) no cap­i­tal gains tax will be payable if the cap­i­tal gain on your pri­mary res­i­dence is less than R2 mil­lion or b) if you sell your pri­mary res­i­dence for less than R2 mil­lion.

If you’re claim­ing ex­penses in re­la­tion to your home of­fice, spe­cific tax rules ap­ply. The Pri­mary Res­i­dence Ex­clu­sion will be al­lo­cated us­ing the same ra­tio you use to claim ex­penses.

On buy-to-let prop­erty, tax de­duc­tions are al­lowed against rental in­come.

The in­ter­est por­tion of the home loan re­pay­ment (linked to the buy-to-let prop­erty) will gen­er­ally be de­ductible.

The Pri­mary Res­i­dence Ex­clu­sion does not ap­ply to buy-to-let prop­er­ties.

In both in­stances (pri­mary res­i­dence and buy-to-let), the in­ter­est sav­ing gen­er­ated by park­ing more money in your home loan is not tax­able.

This ar­ti­cle was first pub­lished on Just One Lap.

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