Rental Property Tax NZ: What Landlords Need to Know

Owning a rental property in New Zealand is one of the most common investment strategies — but the tax rules around property have changed significantly in recent years. If you own a rental and are not across the current rules, you may be paying more tax than you should, or less than you owe.

Here is a practical guide to rental property tax in New Zealand for 2024 and beyond.

All rental income you receive must be declared in your tax return. This includes:

• Weekly or monthly rent payments
• Bond money you retain (e.g. for damage)
• Payments for services included in the rent (e.g. internet, utilities)
• Insurance payouts for loss of rent

Rental income is added to your other income and taxed at your personal marginal rate — up to 39% for income over $180,000.

You can deduct expenses incurred in earning rental income. Common deductible expenses include:

• Rates and insurance — fully deductible
• Property management fees — fully deductible
• Repairs and maintenance — deductible if they restore the property to its original condition (not improvements)
• Accounting fees — deductible
• Advertising for tenants — deductible
• Travel to inspect the property — deductible (with records)
• Depreciation on chattels — furniture, appliances, and fittings can be depreciated

Capital improvements (adding a new bathroom, building a deck) are not immediately deductible. They are capitalised and may be depreciable over time, or added to the cost base of the property.

The interest limitation rules introduced in 2021 significantly restricted the ability of residential property investors to deduct mortgage interest. After several changes, the current position (from 1 April 2024) is:

• 100% of interest is deductible for residential rental properties

The full deductibility was restored by the current government. However, the rules are complex and have transitional provisions — if you have been limiting your interest deductions in recent years, it is worth reviewing your position with an accountant.

New builds have had more favourable treatment throughout — interest on new build rentals has generally remained fully deductible.

The bright-line test taxes gains on the sale of residential property if you sell within a certain period of purchase. It is effectively a capital gains tax on property sold within the bright-line period.

Current bright-line period (from 1 July 2024): 2 years

The government reduced the bright-line period from 10 years back to 2 years. This means:

• If you sell a residential investment property within 2 years of buying it, the gain is taxable
• If you sell after 2 years, the gain is generally not taxable (unless you are in the business of dealing in property)

Exceptions to the bright-line test:

• Your main home (with some conditions)
• Inherited property
• Property transferred as part of a relationship property settlement

The bright-line test applies to the date of the sale and purchase agreement, not settlement.

Rental losses (where your deductible expenses exceed your rental income) cannot be used to offset other income such as salary or business income. They are "ring-fenced" and can only be carried forward to offset future rental income or gains from the same property portfolio.

This rule applies to residential rental properties. It does not apply to commercial property.

If you have been using rental losses to reduce your personal tax bill, this is no longer permitted under the ring-fencing rules (which have applied since the 2019–20 income year).

If you own a property that is used partly for rental and partly for private use (e.g. a holiday home you rent out and also use yourself), special mixed-use asset rules apply.

Under these rules:

• You can only deduct expenses in proportion to the rental use
• Days the property is available but not used are treated differently depending on whether it is rented for more or less than 62 days per year

Mixed-use asset rules are complex. If you have a holiday home or bach that you rent out, get specific advice.

Residential buildings cannot be depreciated for tax purposes (the depreciation rate is 0%). However, chattels — the items inside the property — can be depreciated.

Common depreciable chattels include:

• Carpet and flooring
• Curtains and blinds
• Appliances (oven, dishwasher, heat pump)
• Hot water cylinder
• Light fittings

A chattels valuation at the time of purchase can identify the depreciable value of these items and generate useful deductions over time. This is often overlooked by landlords.

IRD expects you to keep records that support your rental income and expense claims. Keep:

• All rental income records (bank statements, rent receipts)
• Invoices and receipts for all expenses
• Loan statements showing interest paid
• Records of any private use of the property
• Purchase and sale documents

Records should be kept for at least 7 years.

If you have rental income, you must declare it. How you do this depends on your situation:

• IR3 (individual tax return): Most individual landlords file an IR3 each year, declaring rental income and expenses
• Through a company or LTC: If the property is held in a company or look-through company, the entity files its own return

If you have not been filing rental income, it is important to get up to date. IRD has access to tenancy tribunal records, property transfer data, and bank information. Undeclared rental income is a common audit target.

The rules around rental property tax have changed multiple times in recent years. What was correct two years ago may not be correct now. If you own rental property and are not working with an accountant who is across the current rules, it is worth a review.

Book a free consultation →

Eastmure & Associates advises property investors and landlords across Christchurch, Canterbury, Selwyn, and Waimakariri on rental property tax, structuring, and compliance.