What are the interest limitation rules for rental properties in New Zealand?

The interest limitation rules restrict how much mortgage interest landlords can claim as a deduction against their rental income. These rules have been phased in gradually, and the deductibility percentage depends on the tax year.

Interest deductibility by tax year:

For the 2025 tax year (1 April 2024 to 31 March 2025), you can claim 80% of the interest you incur on money borrowed to purchase or maintain your residential rental property.

From 1 April 2025, the interest limitation rules are effectively repealed, and you can claim 100% of your mortgage interest as a deductible expense against your rental income.

What the rules apply to:

• Residential rental property in New Zealand
• Bare land that could be used for residential property
• Interest on loans used to purchase, improve, or maintain residential rental property

What the rules do not apply to:

• Commercial property
• New builds (properties with a Code Compliance Certificate issued on or after 27 March 2020 may have been exempt from the interest limitation)
• Property used mainly as business premises
• Overseas residential property (interest on overseas rentals remains fully deductible)

Practical tip: To claim interest, the borrowing must be directly connected to your rental property. If you have a loan that covers both your rental property and personal expenses, you can only claim the portion of interest that relates to the rental property. Keep clear records of how funds were used.