What interest deductibility means for property investors
If you’re just starting out as a property investor, you’ve probably heard the term “interest deductibility” thrown around. Sounds complicated, right? Don’t worry, here’s what it means, and why it matters for your bottom line.
What is “interest deductibility”?
When you borrow money from the bank to buy a rental property, you pay interest on that loan. The good news is that in New Zealand, you can treat that interest like an expense against your rental income.
Put simply:
If your rent is $25,000 a year, and you pay $30,000 in interest, you can use that $30,000 to reduce your taxable income on your investment property/s.
What are the current rules?
This applies no matter when you bought the property or when you took out the loan.
Can I claim interest on my own home loan?
No, your family home doesn’t qualify. Only loans for rental or investment properties are deductible.
If you rent out part of your home (say a granny flat, a spare room, or an Airbnb), you can claim a portion of the interest that relates to the rented part.
Does ownership structure matter?
Not for the purpose of claiming interest. It’s important to get professional advice from both your lawyer and accountant as everyone's situation is different and you'll want to consider both the legal and tax implications of each ownership structure.
Quick Example
Here's how interest deductibility could work in practice:
Why does interest deductibility matter to you?
For new investors, the return of full interest deductibility from 1 April 2025 is a big deal. It can:
You can read all the nitty gritty detail of property interest on the IRD website.
Don’t let the jargon put you off. Interest deductibility is simply the taxman recognising that paying interest is part of running a rental property. As of 1 April 2025, you’ll once again get the full benefit of this rule.
PLEASE NOTE:
This article is intended for general informational purposes only and does not constitute financial, legal, or tax advice. While we aim to provide accurate and up-to-date information, we recommend that readers seek independent advice from a qualified financial advisor, accountant, or legal professional before making any investment decisions or acting on the information provided. We do not accept any liability for actions taken based on this content.