Owning a rental property comes with regular costs. Some can reduce the rental income you pay tax on. Others cannot be claimed, even if they relate to the property.
Knowing the difference helps you prepare your income tax in NZ with fewer surprises. Here’s a practical guide to common rental expenses, interest, repairs, depreciation, record keeping and the bright-line test.
The rules can depend on how you use the property, how you borrowed the money and what work you have done. This article is general information, not advice for your specific circumstances.
Start with rental income and expenses
You generally work out your rental income by deducting allowable rental expenses from your gross rental income. The remaining amount is your net rental income, which is included in your tax return.
If you own a property with someone else, you usually report your share of the income and expenses. The right approach can also depend on whether the property is privately used, vacant for part of the year or listed for short stays.
IRD’s guidance explains how rental income is taxed.
Expenses landlords can usually claim
You can generally claim costs that relate to earning rental income. Common examples include:
- Council rates for the rental property.
- Property insurance premiums.
- Property management and letting fees, including fees for finding tenants or collecting rent.
- Accounting fees for rental accounts, tax returns and tax advice.
- Repairs and maintenance that keep the property in, or restore it to, its previous condition.
- Some legal and tenancy costs, such as drawing up a tenancy agreement or taking action to recover unpaid rent.
- Mortgage interest, if it meets the rules below.
If you use the property privately as well as renting it out, you may need to claim only the rental portion. The same applies if it was not rented or available for rent for the whole year. Keep a note of the dates and how you worked out any split.
Interest: what changed and what still matters
From 1 April 2025, landlords can generally claim 100% of interest incurred on money borrowed to finance a residential rental property. The previous limit was 80% for interest incurred between 1 April 2024 and 31 March 2025.
That does not make every loan interest cost deductible. The borrowing must meet the usual tax rules. In general, the money needs to have been borrowed for a purpose connected with earning rental income. Only the interest portion of a mortgage payment may qualify. The principal repayment does not.
If you borrowed for both rental and private purposes, you may need to work out the rental share. A rental property used as security for a loan does not make interest deductible if the money was borrowed for a private purpose.
Check IRD’s current residential property interest rules. Keep loan agreements and statements so you can show how the funds were used.
Repairs or improvements? The distinction matters
A repair usually restores something to its previous condition. Fixing a leak, replacing a broken window or repainting a damaged area may be a repair, depending on the facts.
An improvement adds to the property or makes it better than it was before. Adding a room, installing double glazing where there was none, or replacing a whole component with a substantially better one may be capital work. Capital improvements are not usually an immediate rental deduction.
The difference is not always obvious. A large job can include both repairs and improvements, so keep the invoice and ask for a breakdown where possible. Don’t claim the value of your own time doing the work.
Depreciation: chattels may qualify
You generally cannot claim depreciation on residential land or the building itself. However, some separate items in a rental property, often called chattels, may be depreciated. Examples can include qualifying furniture or appliances.
The item needs to meet the tax rules for depreciable property. An item that is part of the building may not qualify as a separate asset. Keep purchase invoices and an asset list showing what each item cost and when you acquired it. For details, see IRD’s depreciation information.
Costs you generally cannot claim
Common non-deductible costs include:
- The property’s purchase price.
- Mortgage principal repayments.
- Capital improvements.
- Depreciation on residential land or the building.
- The value of your own labour.
- Private expenses unrelated to earning rental income.
- Buying or selling costs that are capital in nature, such as real estate agent fees for a purchase or sale.
There can be exceptions or different treatment in particular cases. If a cost does not clearly fit the normal rules, check before including it in your return. IRD has a useful rental expense deductions guide.
Keep records as you go
You do not usually send every receipt with your tax return, but you need to keep supporting records in case IRD asks for them. A simple system can save time when it is time to file your ird tax return nz.
Keep:
- Income records, such as rent summaries and property manager statements.
- Expense evidence, including invoices, receipts and bank statements.
- Loan information, including agreements and statements showing interest and how borrowed funds were used.
- Property and asset records, including purchase documents and a list of chattels.
- Work records, with invoices and notes explaining what was repaired or improved.
- Use and ownership details, including tenancy dates, private-use periods and each owner’s share.
Keep rental records for at least seven years. IRD’s rental property records guidance explains what to retain.
Rental losses may be ring-fenced
If your allowable rental expenses are more than your rental income, you generally cannot use the excess to reduce tax on your salary, wages or other non-rental income. Under the residential property deduction rules, excess deductions are usually carried forward and can be used against residential property income later.
This is known as ring-fencing. It means an accounting loss on a rental property does not necessarily reduce your overall taxable income for that year. See IRD’s guidance on paying tax on rental income.
Bright-line test basics
The bright-line test can apply when you sell residential property. For property sold on or after 1 July 2024, the bright-line period is generally two years. If the sale falls within the applicable period, the profit may be taxable unless an exclusion or rollover relief applies.
For a standard purchase, the start date is generally when legal title is registered to you. For a standard sale, the end date is generally when you enter into a binding sale and purchase agreement, not the settlement date. Special situations can have different rules.
The bright-line test is not the only rule that can make a property sale taxable. Other land-sale rules may apply, including where a property was acquired with an intention to resell. Find out more from IRD’s pages on the bright-line test and start and end dates.
Get your rental return checked
Rental tax does not need to be difficult to manage. Keep clear records, separate repairs from improvements and make sure interest claims match how the borrowed money was used. If you are unsure about a cost or a property sale, get advice before filing.
Tax Doctor prepares rental property tax returns from $400. We agree a fixed fee upfront, provide a dedicated accountant and handle the work 100% online, so you can manage your return from anywhere in New Zealand. Learn about our rental property tax return service or contact us to discuss what you need.
