How is rental income taxed?
Rental income is not taxed at a special, separate rate. It is added to an individual's other income for the year, such as their salary, and the combined total is taxed at their normal marginal rate.
The South African Revenue Service (SARS) only taxes the rental profit. Landlords are allowed to deduct the everyday expenses of running and financing the property before calculating the tax due.
Added to your normal salary
When a person receives rent from a tenant, SARS treats it as standard income. If the rental profit pushes a person's total annual earnings into a higher tax bracket, the profit is taxed at that higher marginal rate.
If the net rental profit exceeds R30,000 in a single tax year, the landlord is legally required to register as a provisional taxpayer and pay their tax in instalments throughout the year, rather than waiting for the annual filing season.
Deducting your running costs
Because SARS only taxes the profit, a landlord must subtract the permissible expenses incurred to produce that rental income. The most common deductible expenses include:
- Interest charged on the mortgage bond.
- Municipal property rates and taxes.
- Sectional title or homeowners' association levies.
- Building (homeowner's) insurance premiums.
- Rental agent commission and advertising costs.
- Repairs and maintenance (e.g., fixing a burst pipe or repainting a peeling wall).
The bond repayment trap
A common mistake is assuming that the entire monthly home loan deduction is a tax expense. It is not.
A standard home loan repayment is split into two parts: a fee paid to the bank (interest) and the actual repayment of the borrowed money (capital). Only the interest portion is a deductible expense. The capital portion is ignored for tax purposes, which often means the taxable rental profit is much higher than the physical cash left in the landlord's bank account at the end of the month.
Improvements vs repairs
SARS draws a strict legal line between maintaining a property and upgrading it. Fixing a broken window is a repair, which is fully deductible against rental income in the current tax year.
Adding a new swimming pool or renovating a kitchen is an improvement. Improvements are capital expenses and cannot be deducted from rental income. Instead, they are added to the property's base cost. This reduces the capital gains tax bill if the property is eventually sold, but provides no immediate income tax relief.
Renting out a portion of a house
If a homeowner rents out a garden cottage or a single bedroom, they cannot deduct the full expenses of the entire property.
The law requires an apportionment calculation based on floor space. If the rented room makes up 20% of the home's total square meterage, the owner can only deduct 20% of the shared costs like municipal rates, bond interest, and general roof repairs.
Making a rental loss
In the early years of owning a rental property, the bond interest and levies often exceed the rent collected, resulting in a mathematical loss. Generally, SARS allows this loss to be subtracted from the landlord's regular salary, which effectively lowers their overall taxable income and their final tax bill.
To prevent abuse, SARS enforces strict ring-fencing rules. If a high earner (someone in the top 45% tax bracket) makes a loss on a property for three out of five years, SARS ring-fences the loss. Once ring-fenced, the loss can no longer reduce the tax on their salary; it can only be carried forward to offset future profits from that specific property.
Terms used on this page
- marginal rate
- The tax rate on your next rand of income — the bracket the top slice of your income falls into.
- provisional taxpayer
- Someone with income not fully taxed at source — business, freelance, or significant rental or investment income — who pays estimated tax during the year and always submits a return.
- base cost
- What an asset cost you in SARS's eyes — the purchase price plus qualifying costs like transfer fees, broker charges and improvements. A capital gain is measured from here.
- taxable income
- The income tax is calculated on, after allowed deductions. For most salaried people it is roughly gross salary minus retirement contributions.
- ring-fencing
- A tax rule that stops a financial loss from reducing a person's general taxable income, forcing the loss to only be offset against future profits from that specific trade or property.
Sources
Reviewed July 2026