Deductible rental expenses and net taxable rental income for 2025/2026.
Net taxable rental income
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Total rental income
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Total deductible expenses
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Mortgage interest
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Other expenses
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Your breakdown
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Amount
Mortgage interest is fully deductible from April 2025
The most significant change to rental property taxation in recent years is the full restoration of mortgage interest deductibility from 1 April 2025. Between 2021 and 2025, deductibility was phased out for existing properties and progressively restored. From the 2025/2026 income year, 100% of mortgage interest on a residential rental property is deductible against rental income. This restores the pre-2021 position and materially reduces the taxable rental income for leveraged landlords. This calculator reflects the fully deductible position for the 2025/2026 tax year.
What counts as a repair versus an improvement
The distinction between a repair (deductible immediately) and a capital improvement (capitalised and depreciated) is one of the most common questions in rental property taxation. A repair restores something to its original working condition without materially improving it. Replacing a broken hot water cylinder with a unit of similar quality is a repair. Upgrading to a heat pump where there was no heating before is an improvement. The IRD does not have a bright line; the test is whether the work restores or enhances. When in doubt, get a tax professional’s opinion before filing.
Chattels depreciation and the benefit of a valuation
Although residential buildings cannot be depreciated, the chattels and fit-out within a rental property can be. Items like appliances, carpets, curtains, light fittings, and external paintwork each have an IRD-specified diminishing value rate. A professional chattels valuation at the time of purchase separates the purchase price into land, building, and depreciable chattels. This maximises the depreciable base and can add several hundred to several thousand dollars of annual deductions depending on the property. The valuation cost is itself a deductible expense.
Frequently asked questions
What rental expenses are deductible in New Zealand?
Deductible rental expenses include mortgage interest (100% from 1 April 2025), council rates, insurance premiums, property management fees, repairs and maintenance, accounting fees for the rental, and certain capital allowances. Improvements that extend the life or increase the value of the property may need to be capitalised and depreciated rather than expensed immediately.
When was mortgage interest deductibility restored?
Mortgage interest was fully phased out as a rental deduction in 2021. It was progressively reintroduced: 50% deductible from 1 October 2023, 75% from 1 April 2024, and 100% deductible from 1 April 2025. The reinstatement applies to all residential rental property, not only new builds. New builds were exempt from the phase-out and remained fully deductible throughout.
Can I claim depreciation on a rental property?
Residential buildings have a 0% depreciation rate since 2011 under the Income Tax Act. Chattels and fit-out items such as appliances, carpets, and curtains can still be depreciated at the IRD-set diminishing value rates. A chattels valuation at purchase can split the property value between land, building, and depreciable chattels, maximising the deductible depreciation on the non-building components.
What happens if my rental expenses exceed my rental income?
If your total deductible rental expenses exceed your rental income, the resulting loss is a rental loss. Ring-fencing rules that previously limited the use of rental losses against other income were repealed. From the 2021/2022 income year, rental losses can be used to offset other income (such as salary), reducing your overall tax bill in the same income year.