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Working from home? Homeowner tax deductions explained

15 Mar 2016

As another financial year draws to a close, taxpayers will be getting their affairs in order and getting ready to submit their tax returns. Many will be assessing their financial situation and looking at the tax deductions that they will be able to claim back from the Receiver of Revenue.

Goslett says a homeowner will only qualify for a home office deduction if they are employed, working for a salary and a condition of the employment is to carry the cost of keeping a home office as the homeowner’s central business location.

This is according to Regional Director and CEO of RE/MAX of Southern Africa, Adrian Goslett, who says when it comes to tax deductions, a taxpayer is entitled to their claim, however the onus falls on them to prove that a particular amount is deductible, as well as justify the claim by showing the calculation of how they arrived at the deduction figure.

Goslett says that although many homeowners will qualify for a tax deduction, it is sometimes a difficult task for them to establish the amount of interest on their bond that is tax deductible.

“In certain situations, however simple they may seem at first, there can be complications and queries that could possibly arise,” he says.

“Therefore a homeowner needs to make doubly sure that they know what they are doing, or if they are in doubt they should consult with a professional tax consultant.”

Working on a home purchased for R1 million, Goslett says that if the homeowner works from home and uses 20% of the property as a home office based on the square meterage calculation, they will be entitled to a tax deduction based on the interest charged on the remaining outstanding bond amount.

“If the homeowner has paid off a portion of the bond and currently owes R800 000 and the interest on the bond is charged at 14%, they will be charged R112 000 interest for the year,” says Goslett.

“Because 20% of the property is used as a home office, the homeowner would be entitled to claim 20% of the R112 000 as a tax deduction in the production of their income.”

He adds that it is important to remember that a homeowner will only qualify for a home office deduction if they are employed, working for a salary and a condition of the employment is to carry the cost of keeping a home office as the homeowner’s central business location.

Goslett says that if the homeowner owes R800 000 on their bond and then decides to draw a further R100 000 to finance personal expenses, they will not be able to take into account the tax amount on the additional money taken, as this is not in the production of income.

“Any interest that is charged on the additional R100 000 will be excluded from the calculation of deductible interest from the time it is taken, going forward for all the years that the homeowner carries the bond,” he says.

“Essentially what this means is that a smaller percentage of the initial 20% of the interest reflected on the bond statement is tax deductible from then onwards.”

He says the percentage of deductible interest will continue to change as the homeowner makes further withdrawals from their bond account for other non-income producing purposes.

According to Goslett, on the flipside of the coin where the homeowner would like to make a substantial payment into their bond, such as an inheritance pay out for example, they will not have the option to only allocate their money to the 80% private portion on the bond and not impact the other 20% that is regarded as business use.

“A homeowner may want to only pay the money towards the 80% to maintain the value of the deductible portion of the bond. However this is not possible as the bond is regarded as one account that cannot be divided or proportioned into separate segments,” says Goslett.

“Regardless of how the home is divided and what percentage is for personal use and what percentage is for business use, the bond is over the entire property. This means that any money that is allocated to the bond account will reduce the balance of the bond in its entirety.”

He says for this reason, if the homeowner has any other loans that are not tax-deductible, it might be a better option from a tax planning perspective to allocate the inheritance to pay off those loans instead.

“As a homeowner, figuring out tax deductibles can sometimes be a rather overwhelming experience,” says Goslett.

“If there is ever any area of doubt, it is best to consult with a professional financial adviser or tax consultant who can provide assistance and guidance through the process.”

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