Buying vs renting a property: The tax options

Question

I currently own a home and have a bond on it. I need to move closer to my place of work. I intend to retire in about five years to a town closer to the coast so do not intend to buy another home in Johannesburg.

My options are:
A
1. Sell my current home (Northern Suburbs) and rent a property closer to my work (Central).
2. Invest the capital in the bank and earn interest.

B
1. Same as point 1 above
2. Purchase a home (Coastal) in the said coastal town and rent it out, thus earning rental income.

C.
1. Rent my current home (Northern suburbs) out, thus earning rental income.
2. Rent a home (Central) closer to work.
3. Sell my Home (Northern suburbs) when I move to the coastal town

For arguments sake let us assume the rent I pay is R8000 a month for the Central house and the rent I charge in C above (Northern Suburbs) is R10 000 while the rent I charge in B (Coastal) is R7 000.

What would be the best option from a tax point of view?

Answer, Muneer Hassan, is project director at SAICA

One cannot answer this question as the answer is dependent on many variables. I will however explain the basic tax principles that apply.

The sale of a primary residence subject to the primary residence and annual exclusion is subject to CGT;

Interest earned subject the annual exemption will be subject to tax at the taxpayers marginal tax rate;

Rental paid cannot be claimed as a deduction for salaried employees;

Rental earned subject to permissible deductions will be taxed at the taxpayers marginal rate.

TAXtalk: www.taxtalkblog.com

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