Prepared for residential landlords. Current as at 29 August 2025. This guide is general in nature and does not constitute tax advice. Consider your specific facts and keep documentation to support your position.
Mortgage interest
From 1 April 2025, interest on money borrowed to finance a residential rental is fully deductible (100%), provided the borrowing relates to the rental and general deductibility rules are met.
Commonly deductible interest includes:
- Primary mortgage used to purchase the rental property.
- Top‑ups or secondary loans used for rental purposes (traced to the rental).
- Refinanced loans to the extent funds relate to the rental.
- Overdraft or revolving credit interest where the borrowing relates to rental expenses.
Property management and letting
- Property management fees and commissions.
- Letting fees and advertising for tenants.
- Inspection fees, tribunal application fees, and tenant credit checks.
If you self‑manage, you can still claim direct costs like advertising, credit checks, and reasonable travel related to managing the rental.
Rates and insurance
- Council rates and levies for periods when the property is rented or available for rent.
- Insurance premiums: building, landlord, contents for landlord‑owned chattels, and public liability.
- Mortgage repayment insurance where required by the lender for the rental loan.
Repairs and maintenance vs capital improvements
Repairs and maintenance restore the property to its prior condition (deductible). Capital improvements enhance value or function (not immediately deductible). Keep invoices and before/after photos.
Repairs and maintenance that generally qualify:
- Fixing leaks, broken windows, plumbing or electrical faults.
- Like‑for‑like replacement of worn carpets or vinyl, broken appliances or fixtures.
- Painting to restore condition.
- Routine upkeep: lawn mowing, gutter cleaning, pest control, chimney sweeping, heat‑pump servicing, smoke‑alarm testing and batteries.
Capital improvements (claim via depreciation if applicable or treat as part of cost base):
- Additions or upgrades that improve value or function (e.g. adding a deck or conservatory).
- Upgrading from carpet to wooden flooring.
- Installing new fixtures that did not previously exist.
- Initial work to bring a newly‑acquired run‑down property up to a rentable standard.
Depreciation on chattels
Residential buildings are not depreciable. However, landlord‑owned chattels in a rental can be depreciated over their useful lives.
Common depreciable chattels include:
- Carpets and vinyl, curtains and blinds, light fittings.
- Appliances: ovens, dishwashers, washing machines, dryers.
- Heat pumps and ventilation systems, hot‑water cylinders.
- Rangehoods, waste‑disposal units, and furniture in furnished rentals.
Consider a chattels valuation when purchasing to establish opening values. Depreciation timing and rates depend on the asset category and method chosen.
Vehicle and travel related to the rental
If you use your vehicle for rental activities (inspections, meeting tenants or trades, purchasing supplies), choose one Inland Revenue method and keep records.
- Logbook: keep a 3‑month logbook to establish your business‑use percentage. Then use this % to claim total MV costs. Keep log book for 3 years.
- Track actual kilometer’s travelled and apply Inland Revenue kilometer rates (Tier 1 up to 14,000 km total vehicle travel, then Tier 2).
- 25% default (no logbook): claim 25% of total running costs. Keep evidence and ensure the claim is reasonable.
- Actual costs: track all costs and apportion by business use (logbook strongly recommended).
Home office and phone/internet
Claim a fair portion of household costs where there is a connection between the use of your home and earning rental income; keep your basis for apportionment.
- Square‑metre option for utilities (use the current IRD rate for the relevant year).
- Apply a floor‑area percentage to premises costs like mortgage interest, rates or rent.
- Internet and mobile: claim a fair, reasonable business share with a recorded rationale.
- No depreciation on the home itself; separate capital items like office furniture may be depreciated.
Professional and finance costs
Accounting and tax services (deductible):
- Annual returns and financial statements, GST (if applicable).
- Tax planning and bookkeeping.
- Software subscriptions used for the rental.
Legal fees:
- Deductible: tenancy agreements, debt collection, tribunal proceedings, finance/refinancing and related required valuations.
- Immediate deduction generally available for total legal fees up to $10,000 in an income year (subject to rules).
- Capital/non‑immediate: conveyancing on purchase/sale, subdivisions, resource consents, structure setup (may be deductible over time).
Banking and loan‑related fees (deductible):
- Bank account and transaction fees for rental accounts.
- Loan application, broker, break and discharge fees when refinancing.
Utilities and services
- Water rates you pay (if not paid by the tenant).
- Power and gas during vacancies (for viewings or maintenance).
- Internet provided for tenants.
- Lawn and garden maintenance, rubbish removal, end‑of‑tenancy cleaning.
- Body corporate or residents’ association fees.
Safety and compliance
- Smoke‑alarm installation and annual testing.
- Electrical or gas safety checks and certifications.
- Methamphetamine or asbestos testing where appropriate.
Costs to meet Healthy Homes standards may be capital unless they repair existing defects. Keep documentation and seek advice.
Gifts and entertainment
Gifts of food or drink are generally only 50% deductible under entertainment rules. Non‑food promotional gifts are typically 100% deductible. Keep descriptions on receipts.
Mixed‑use, ring‑fencing and timing
- Mixed‑use (e.g. a holiday home you also use privately): apportion all expenses; only the rental portion is deductible.
- Residential rental deductions are ring‑fenced — excess deductions generally carry forward to offset future residential rental income.
- Timing: complete deductible repairs before 31 March if cash‑flow allows; defer non‑urgent spend into a lower‑income year if sensible.
Debt structure and tracing
Keep rental borrowings clearly separated from private debt. When refinancing or using revolving credit, trace funds to demonstrate the rental purpose. This supports interest deductibility and simplifies reporting.
Record‑keeping checklist
- Separate bank account for the rental.
- Invoices/receipts for all claimed expenses (digital copies acceptable).
- Loan statements and annual interest certificates.
- Depreciation schedules for chattels.
- Vehicle logbook or mileage records (retain 7 years).
- Home‑office calculations and rationale.
- Tenancy agreements and correspondence.
- Property‑management statements and inspection reports.
- Insurance policies and premium notices.
Keep records for at least 7 years. Cloud storage with backups is recommended.