Home Expenses Tax Deductions: A Comprehensive Guide

Managing home expenses efficiently can significantly impact your financial health, especially if you work from home. Many homeowners and renters may not realize they could be eligible for tax deductions related to their home office. Understanding what home expenses are tax deductible and how to claim them can provide substantial savings and reduce your financial strain. This guide will walk you through the essentials of claiming home office deductions, including the specific criteria you need to meet and the types of expenses you can deduct.

What Home Expenses Are Tax Deductible

If you work from home and have designated a specific room for work, you might be eligible to deduct certain home expenses from your taxes. Here’s what you need to know to take advantage of these deductions and save money.

Home Expenses: Requirements for Claiming

To qualify for home office expenses at SARS, you need to meet specific criteria outlined in Section 23(b) of the Income Tax Act:

1. Exclusive Use: The room must be regularly and exclusively used for your work. This means it should be set up specifically as your home office and not used for any other purposes.
2. Main Work Location: If you earn a salary, you must perform more than 50% of your duties in your home office. If your income mainly comes from commissions or variable payments, you must do more than 50% of your work outside of any office provided by your employer.

What Home Expenses Are Deductible?

Here’s a breakdown of the typical home office expenses that might be deductible:

Home Expenses Closely Linked to the Premises: Home expenses examples include a partial deduction of the cost of renting, your home repairs to the premises, and utilities such as rates, taxes, cleaning, and electricity related to your home office.

Home Expenses: Other Potential Deductions: Other home expenses in South Africa include wear and tear on work items, costs for office equipment and repairs, communication expenses like phones and internet, and office supplies used for your trade.

Where to Claim These Expenses: When claiming home office expense on your Income Tax Return (ITR12), enter the deductible amount for home office expenses next to source code 4028 in the “Other Deduction” section and add your home expenses list.

Capital Gains Tax Implications: Using part of your home as a home office can affect your Capital Gains Tax when selling, as the primary residence exclusion only applies to the portion not used for business.

Mortgage Bond Interest: Previously, interest on a mortgage bond was deductible. However, as of 2023, this is no longer the case for employees or officeholders claiming monthly home expenses.

How To Make A Budget For Home Expenses

Creating a budget is a crucial step toward taking control of your finances. It helps you see where your money is going each month and makes it easier to save for your goals. Here’s a simple, guide to help you create an effective budget to help you reduce these costs and ease the financial burden of your home expenses.

Managing Home Expense: For Renters

1. Evaluate Your Lease Options: Review your lease terms to determine if you can move to a more affordable place at the end of your lease or break it early. Calculate any potential penalties for breaking your lease early to ensure it’s a financially viable option.
2. Consider Sub-Letting: Check if your lease allows sub-letting. Find a suitable tenant or roommate to rent out a room or take over your lease, which can help reduce your monthly rent.
3. Get a Roommate: Look for a reliable roommate to share your living space. Ensure both parties agree on shared expenses and responsibilities to split costs effectively.
4. Explore Moving Back Home: Assess the feasibility of moving back in with family. Weigh the savings against the potential challenges of living with family members.

Managing Home Expense: For Homeowners

1. Rent Out Part of Your Home: Determine if you have extra space that can be rented out. List the room or section for rent and screen potential tenants to generate extra income.
2. Consider Renting Out the Entire House: Evaluate if moving to a cheaper place and renting out your entire house is a suitable option. Prepare your home for rental, find a reliable property manager if needed, and list your house for rent.
3. Reduce Utility Bills: You can reduce your utility bills by making a few changes to your household including the following: request a free energy audit from your municipality, replace old showerheads with water-saving models, use fans or natural ventilation instead of air conditioning, hang clothes to dry instead of using a tumble dryer, and opt for showers over baths to save water.
4. Evaluate Selling Your House: Consider if selling your house is a feasible option to alleviate high maintenance and mortgage costs. Consult with real estate professionals to understand the market and potential proceeds from selling.

How To Claim Home Office Expenses From Sars

In today’s flexible work culture, many employees find themselves working from home. understanding  how to claim home office expenses is crucial in this setting as the trend has become even more prevalent since the global COVID-19 outbreak in 2020. Here’s a guide to help you navigate the process of claiming your working from home expenses.

Claiming Home Expenses: Eligibility Criteria

To claim home expenses, you need to meet specific conditions set by SARS:

1. Employer Approval: Your employer must allow you to work from home. You will need a letter from your employer confirming this arrangement.
2. Work Hours: You must spend more than half of your total working hours in your home office.
3. Exclusive Use: You must have a dedicated area in your home used exclusively for work. This cannot be a shared space like a dining room or a playroom.
4. Equipped for Work: Your home office must be equipped with the necessary tools and equipment for your trade.

SARS is stringent about these requirements and may ask for evidence such as photographs and floor plans of your home office to ensure it meets their standards.

How to Calculate Home Expenses Deduction

To calculate your home office deduction you can either use a SARS home office expenses calculator or follow these steps:

1. Determine the Area: Measure the area of your home office and the total area of your home. Calculate the percentage of your home used for the office.
2. Apply the Percentage: Use this percentage to calculate the portion of expenses related to your home office.

Example:

Leigh-Ann, a graphic designer, works from home three days a week. Her home office is 20 square meters, and her entire home is 200 square meters, making the home office 10% of her total home area.

Her annual expenses are:

• Rent: R120,000
• Rates and electricity: R36,000
• Cleaning: R36,000
• Roof repairs: R5,000

Home Expenses Calculation: Home Office Deduction=10%×(R120,000+R36,000+R36,000+R5,000)+Depreciation on Equipment\text{Home Office Deduction} = 10\% \times (R120,000 + R36,000 + R36,000 + R5,000) + \text{Depreciation on Equipment}Home Office Deduction=10%×(R120,000+R36,000+R36,000+R5,000)+Depreciation on Equipment

Home Office Deduction=10%×R197,000+Depreciation\text{Home Office Deduction} = 10\% \times R197,000 + \text{Depreciation}Home Office Deduction=10%×R197,000+Depreciation

Home Office Deduction=R19,700+R6,666=R26,366\text{Home Office Deduction} = R19,700 + R6,666 = R26,366Home Office Deduction=R19,700+R6,666=R26,366

Leigh-Ann’s total home office deduction for the tax year is R26,366.

Submitting Your Home Expenses Deduction to SARS

When filing your Income Tax Return (ITR12), enter the calculated amount under the “Other Deductions” section, using the source code 4028 for home expenses. If this section does not appear, answer “Yes” to the question about other deductible expenses in the form wizard.

To support your claim, you will need the following supporting documents:

• A letter from your employer stating you can work from home
• A detailed schedule of home office expenses
• Calculations showing how the amount was determined
• Proof of payment for expenses (e.g., utility bills)
• Photographs of your home office showing exclusive use
• Floor plans of your home with the office area clearly marked

Impact on Capital Gains Tax (CGT)

Claiming home office expenses can affect your CGT when you sell your home. The part of your home used as an office may “taint” the primary residence exclusion, meaning you’ll need to pay CGT on the portion used for business. The primary residence exclusion of R2 million applies only to the personal-use portion of your home.

Expert Debt Guidance From National Debt Advisors

Are you looking to take control of your home expenses and maximise your tax savings? At National Debt Advisors we can offer professional debt counselling services to ensure you employ the best solutions to help you manage your debt. The first step is to evaluate whether you’re eligible for home office deductions. Review the criteria to ensure your workspace qualifies, and gather all necessary documentation, including a letter from your employer, detailed expense schedules, and proof of payments. Understanding these requirements can help you leverage potential deductions and reduce your overall financial burden.

At National Debt Advisors, we’re committed to helping you navigate the complexities of managing home expenses and optimizing your tax deductions. Our team of experienced professionals can provide personalized guidance tailored to your specific situation, ensuring you maximise your eligible deductions while maintaining compliance with tax regulations.

Don’t wait to take advantage of these opportunities. Contact National Debt Advisors today to schedule a consultation with our experts. We’re here to help you understand the intricacies of home office deductions and develop strategies to manage your home expenses effectively. Contact us today.