Interest Deductibility for Residential Properties

Recent policy changes have had significant impacts on homeowners, especially those with rental properties. Below, we outline the impact of interest deductibility changes for our property owners.

Changes to Interest Deductibility:

Under the previous government, property investors had to pay tax on their rental income without being able to deduct mortgage interest as an expense. This increased their tax burden and reduced cash flow.

Effective from April 1, 2024, interest deductibility has started to be progressively reintroduced. From this date, homeowners can claim a deduction for 80% of the interest on funds borrowed for residential property. From April 1, 2025, homeowners will be able to claim 100%.

If you own a rental property with a mortgage, you can deduct the interest you pay on the mortgage from the income you receive as rent when determining your taxable income. This reduces taxable profit by the amount of mortgage interest paid, affecting the tax property owners owe. In turn, this increases cash flow for property owners, as they can now deduct mortgage interest from their taxable income. Interest deductibility varies by property type and purchase date; however, the plan is to allow full mortgage deductibility for all properties by April 2026.

You can read more about the interest deductibility changes here.

Read the IRD article here about what other rental property expenses you can and cannot claim.

Disclaimer: This blog post represents our interpretation of the law changes. Depending on your personal circumstances, we suggest seeking advice from an appropriate advisor before taking any action based on the content of this post.