How much capital gains tax will I pay when I sell my investment property?

Overview

  • you may need to pay capital gains tax when you sell your investment rental property for a profit in South Africa
  • the maximum you will pay is 18% - if you are in the highest income tax bracket
  • the amount of tax payable depends on your income tax bracket
  • you only pay tax if your profit - including profits from other sources - is more than R40 000 in a year
  • if you make a loss, you can use it to offset future gains

CGT calculator for your investment property

Here is the simple formula and online CGT calculator to work out how much capital gains tax you will pay when you sell your investment property in South Africa.

The Formula
Tax you will pay = (Profit - R40 000) x 40% x Marginal Income Tax Rate
Capital Gains Tax Calculator for 2022-2023 tax year
I currently earn (Rands) per year
Here is how much tax you will pay
= [(R100k - 40k) x 40%] x Marginal Income Tax Rate
= R24k x 36.0%
= R9k
R 1.0k = tax you need to pay based on a R100k profit.

Will you need to pay capital gains tax when you sell your investment property

When does capital gains on an investment property apply?

  • if you sold, donated the property or emigrated to another country, and
  • if you had the property for more than three years, and
  • if you made more than R40 000 profits

When does capital gains tax NOT apply on your investment property?

  • if you held the investment property for less than three years. In this case, SARS may see the profit as income and apply income tax
  • if you made less than R40 000 in profits - including from other sources - in a year - no tax will be payable on your profits

How to calculate capital gains tax when selling your investment property in South Africa

When you sell your investment property

  1. For more than it cost you - then you have made a profit
  2. For less than it cost you - then you have made a loss

If you made a profit,

the amount of capital gains tax you pay on your investment property is calculated

  • Step 1. Calculate the total profits
  • Step 2. Deduct R40 000 (“annual capital gains exclusion”) from your profits
  • Step 3. Multiply by 40% (“the inclusion rate”) of your profits
  • Step 4. Multiply by your marginal income tax rate

If you made a loss,

  • it will not reduce your tax payable in this year,
  • but, you can carry it forward to the next year and offset it against any gains
  • if no gains are made next year, you can carry the losses forward forever util you make gains

How to calculate the base cost for your investment property

you can include the following amounts in your base cost

  • renovations done to property
  • improvements - eg swimming pool
  • transfer costs
  • estate agency fees
  • advertising costs to find a buyer

you cannot include the following amounts in your base cost

  • repairs, maintenance
  • interest payments relating to your bond
  • insurance
  • rates and taxes

Summary

  • SARS may tax you on your profits when you sell your investment property
  • If you held your investment property for less than three years, income tax may apply
  • If you held your investment property for more than three years, capital gains tax may apply
  • Capital gains tax (CGT) is less evil than income tax, since SARS allows for deductions when it comes to capital gains
  • For CGT, you can deduct R40 000 from your profits AND reduce your taxable profits further by multiplying by the inclusion rate (40%)
  • The amount of CGT you end up paying is linked to how much you earn
  • Higher earners are in a higher income tax bracket and will pay more CGT than lower income earners
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