Renting Guide

What expenses can you claim on a rental property?

If you’re new to property investment tax can be tricky. We’ve got the answers to make it easier.

Last updated: 1 February 2024

Claiming expenses correctly on your rental property could save you hundreds or even thousands of dollars every year. But as tax tends to be, the rules around what you can and cannot claim as an expense are a little confusing.

To help ensure you pay only the tax you need to, we’ve put together a quick guide to deductible expenses for rental properties in NZ.

What are deductible expenses for rental properties?

When you run any business you pay tax on profit, meaning revenue minus expenses. It’s the same when you own a rental property. Your income will be the rent that your tenants pay, while expenses will be things like landlord insurance, property management fees, repairs and maintenance.

By correctly declaring or ‘claiming’ all genuine expenses you can reduce your taxable income and thus the amount of tax you’re required to pay. If you’re new to owning a rental property and don’t have experience with tax, it’s a great idea to get an accountant to help you with your tax return and expenses.

What can I claim on a rental property?

Deductible expenses for rental properties in New Zealand are generally incurred in generating rental income. These include:

Insurance for the property.
Legal fees involved in purchasing the property (max $10,000).
The cost of repairing and maintaining the property.
Fees for an accountant to help you manage the property’s finances.
Fees for arranging a mortgage to purchase the property.
Rates for the property.
Cleaning.
Fees for a property manager, plus costs for evicting a tenant or finding new tenants including drawing up a tenancy agreement.
The cost of getting a valuation to secure a mortgage.
Travel expenses for travelling to inspect your property or do repairs.
The cost of legal action to recoup unpaid rent.
Depreciation on capital expenses (more on this later).
Interest on the property’s mortgage (in some cases - more on this later).

Note that you can’t claim all expenses related to owning a rental property. Those that you can’t claim include capital expenses, the property’s purchase price, the principal portion of your mortgage repayments, the cost of improving the property, real estate agent fees as a result of buying or selling, or depreciation on the rental’s land or buildings.

Capital expenses (which you can’t claim) are expenses that improve the value of your rental property, such as a new roof or new carpet. Sometimes repairs and maintenance can be classed as capital expenses if they improve the value of the property.

Talk to your accountant to make sure you're maximising deductions.

What about interest deductibility on my rental property?

Before 1 October 2021 you could claim all of the interest payments on your rental property’s mortgage as an expense. Then the Labour Government changed the rules, disallowed interest deductibility on all property purchases after 1 October 2021 and put in place a plan to phase out interest deductibility on properties purchases after a certain date - see below.

Phasing out of interest deductions for properties acquired before 27 March 2021

Date interest incurred is before 30 September 2021: Interest is 100% deductible.
1 October 2021 to 31 March 2023: 75% deductible.
1 April 2023 to 31 March 2024: 50% deductible.
1 April 2024 to 31 March 2025: 25%.
On or after 1 April 2025: Interest is not deductible.

But these latter changes no longer apply. The new coalition government has committed to phasing interest deductibility back in. The plan is now to offer a 60% deduction in 2023/24, 80% in 2024/25 and a 100% reduction from 2025/26.

This puts landlords in the confusing position of trying to figure out whether to pay their taxes according to the Inland Revenue Department website and the law, or what the government says the law is going to be. Talk to your accountant to make sure you get this right!

Choosing a good accountant

If what you’ve read so far is a little confusing, you’re not alone. There are hundreds of tax laws and rules around what rental property expenses you can claim – and the vast majority of landlords don’t know them (or don’t need to know them).

It’s often better to hire an accountant to handle the tax stuff for you. If you do, look for one that’s a member of a professional body like Chartered Accountants Australia & New Zealand (CA ANZ), an accountant who has relevant experience and who you've recommended, or someone with plenty of positive reviews (whether that’s customer testimonials or online reviews). Find out how they charge and what your tax return is likely to cost before committing to anything, and keep in mind that larger accounting firms tend to charge higher fees and smaller ones often charge less.

*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.

Author

Ben Tutty

Ben Tutty is a regular contributor for Trade Me and he's also contributed to Stuff and the Informed Investor. He's got 10+ years experience as both a journalist and website copywriter, specialising in real estate, finance and tourism. Ben lives in Wānaka with his partner and his best mate (Finnegan the whippet).