Tax on net rental profit.
Tax on rental profit
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Net rental profit
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Cash flow after tax
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You are taxed on profit, not on rent
A common worry among first-time landlords is that the whole rent cheque gets taxed. It does not. Inland Revenue taxes the net profit from your rental, which is the rent you collect less the deductible costs of running the property. Those costs include rates, insurance, repairs and maintenance, property management fees, accountancy, and now mortgage interest in full again. Whatever is left after subtracting them is added to your other income and taxed at your marginal rate. This calculator takes rent, expenses, interest, and your marginal rate, and returns both the tax and the cash you keep after tax.
Interest is fully deductible again from 2025-26
This is the change that matters most for the numbers. After several years of the interest limitation rules, which progressively denied interest deductions on residential rentals, deductibility has been fully restored. From the 2025-26 income year, 100 percent of your mortgage interest is deductible against rental income again. For a leveraged landlord that is a large swing, because interest is usually the single biggest cost. The tool assumes full deductibility, so the interest figure you enter comes straight off your rental income before tax is applied.
A worked example on a typical rental
Picture a rental returning $36,000 a year. Rates, insurance, and repairs come to $8,000, and mortgage interest is $22,000. The taxable profit is $36,000 minus $8,000 minus $22,000, which is $6,000. At a 33 percent marginal rate the tax is $1,980, leaving $4,020 of after-tax cash flow before you make any principal repayments. The steps are below.
| Line | Amount |
|---|---|
| Annual rent received | $36,000 |
| Less rates, insurance, repairs | $8,000 |
| Less mortgage interest (100% deductible) | $22,000 |
| Taxable rental profit | $6,000 |
| Tax at 33% | $1,980 |
| After-tax cash flow | $4,020 |
When the rental runs at a loss
Plenty of New Zealand rentals make a tax loss, especially when interest is high relative to rent. If your deductible costs exceed your rent, the tool reports a loss and no tax to pay. Here is the rule that trips owners up: residential rental losses are ring-fenced. You cannot offset that loss against your salary or other income to claw back PAYE. Instead the loss is carried forward and can only be used against future rental profits, or against a taxable gain when you eventually sell under rules like the bright-line test. So a paper loss does not deliver a tax refund this year; it banks a deduction for a more profitable year ahead.
Watch the gap between tax profit and cash
The figure to keep your eye on is the difference between taxable profit and real cash flow. Taxable profit ignores the principal portion of your mortgage repayments, because principal is not deductible, only interest is. So a property can show a $6,000 taxable profit while your bank account barely moves, once you have paid down loan principal that the tax calculation never saw. A practical tip: keep a separate ledger for tax profit and for actual cash in and out, and never assume the after-tax cash flow here is money free to spend if you are also repaying principal. Capital improvements, as opposed to repairs, are also not immediately deductible; they are added to the property’s cost base instead.
Do I pay tax when I sell the rental for a gain?
Usually not, because New Zealand has no general capital gains tax. The main exception is the bright-line test, which taxes the gain on residential property sold within two years of buying it at your marginal rate. Property held longer than the bright-line period generally escapes tax on the capital gain, though if you bought with a clear intention to resell, separate intention rules can still make the gain taxable. The rent you earn along the way is always taxable; the eventual capital gain usually is not.
Can I split the rental income with my partner?
Only in line with legal ownership. If the property is owned jointly, the income and expenses are split according to each owner’s share, which can lower the total tax if one partner sits in a lower bracket. You cannot simply allocate the profit to whoever pays the least tax; Inland Revenue looks at who actually owns the asset. Ownership structures such as a look-through company or a trust are sometimes used for this, but they carry their own costs and compliance, so take advice before restructuring.