Buying guide
Interest deductibility on rental property explained
The laws are changing so we’ve got up to date answers to make life easier.
Navigating the latest tax changes for rental properties can feel like a maze, especially when the laws shift with each new government. If you're a property investor or landlord in New Zealand, understanding how these changes impact you — and knowing what you can and can’t claim — can make a big difference when it comes to tax season.
Here’s a rundown on where things stand with interest deductibility on rental property expenses.
But first, what is interest deductibility on rental property?
In a nutshell, interest deductibility on rental properties allows landlords to deduct their mortgage interest costs from their rental income, reducing taxable income and, in turn, tax owed. This tax break treats rental properties a bit like a business, allowing mortgage interest as an expense against rental revenue.
However, back in 2021, the Labour government started phasing out this tax deduction, with full removal planned for 2025. Now, with the new National/ACT/NZ First coalition government in place, that phase-out has been reversed. The government is actively reintroducing interest deductibility for landlords, aiming to bring it back to 100% by 2025.
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Current rules — what's deductible now?
Under the previous Labour-led policy, landlords who bought properties after March 2021 saw gradual reductions in their deductible interest each year. But National's new phase-in plan will make things more favorable for property investors:
- 2023/24 Tax Year: 60% of interest costs deductible
- 2024/25 Tax Year: 80% of interest costs deductible
- 2025/26 Tax Year and Beyond: 100% deductible
These deductions will apply retrospectively for recent years, meaning investors may even be able to reclaim some past tax payments, though the government is yet to release full details on how this process will work.
There are tax advantages to owning a new build property.
Other changes for investors to note
Alongside the return of interest deductibility, the new government has shortened the "bright-line test" (similar to a capital gains tax). Now, if you sell a property within two years of buying it, any profit is subject to tax. This adjustment aims to reduce the impact of tax on longer-term investments.
Should I be doing anything now?
Until these changes are officially in place, it's smart to follow the phased-out deductibility rules to avoid any missteps on your taxes. You’ll also want to keep a close eye on updates from the IRD or speak to your accountant about potentially adjusting your tax filings once National's policy comes into effect.
Want to learn more? Dive into capital gains tax here.
Get the right help
Navigating the new rules may feel overwhelming, but an experienced tax accountant can help you make sense of it all. Whether you go with a large firm or a local accountant, look for someone who knows the ins and outs of New Zealand’s rental property rules. They’ll be able to guide you through current laws and keep you updated on how to handle deductions moving forward.
These changes are designed to make life easier for property investors, but as with all tax matters, staying informed is key.
*We hope this article has provided some helpful information. It's based on our experience and is not intended as a complete guide. Of course, it doesn’t consider your individual needs or situation and it is not financial advice. If you own a rental property make sure to speak with an advisor or accountant if necessary.
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