Home-based businesses

Home-based businesses and capital gains.

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If a homeowner carried on a profitable business from the property and has claimed a portion of household expenses against his income earned, then the gain from the property must be split between the portion that relates to the business and the portion that relates to the primary residence.

Only the latter may be offset by the R2 million primary residence exclusion.

For example:

  • Susie has set up a room in her home from which to run her consulting business.
  • This room comprises 15% of the floor space of the house
  • She sells this property and makes a capital gain of R 1.5 million
  • Ordinarily, if she had not carried on a business from her home, there would be no tax implications on this disposal as the gain falls below the R2 million exclusion
  • However, in this case she will be taxed on the portion that relates to her business
  • She will then need to declare a capital gain of R225000 (15% of R 1.5 million)
  • From this she can deduct the annual exclusion to arrive at a net gain of R 185 000
  • This will result in an amount of R74000 being included in her taxable income to be taxed at her marginal rate.

Burman says the above scenario should not discourage a homeowner from deducting home office expenses.

Categories:

When someone carries on a business from home as the tax savings to be gained from the deductions over the years, this will usually exceed any capital gains tax liability that will arise in the future.

Author: Jeremy Burman

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