Interest Deductibility
Interest deductibility refers to the ability of property owners to deduct the interest paid on their mortgage loans from their taxable income . It ’ s a crucial element that can affect the viability of any investment property and an area of taxation that has seen ongoing changes .
With the current government reinstating the ability to deduct interest , it means the interest paid on any funds borrowed to buy or enhance a rental property can again be deducted from the property ' s rental income , reducing the owner ' s taxable income and lowering their overall tax liability .
What are the rules today ?
Claiming interest as an expense for residential property in New Zealand is being phased back in , and from 1 April 2024 , you can claim 80 % of the interest incurred for funds borrowed for residential property ( regardless of when the property was acquired or when the loan was drawn down ).
From 1 April 2025 interest deductibility will be fully restored , and you will be able to claim 100 % of the interest incurred .
Interest deductibility timeline
From April 2024 From April 2025
80 % deductible 100 % deductible
What types of interest costs are deductible ? Landlords can deduct their interest costs if the lending is used for two key purposes :
• Interest on loans for rental property purchase : If you took out a loan to purchase a rental property , generally the interest on that loan is tax deductible .
• Interest on loans for property improvement : If a loan is taken specifically to make improvements to your rental property , the interest on that loan is also tax deductible in most cases . rvice department .
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