Interest deductibility made simple.

Property Investor Hub

What interest deductibility means for property investors

Interest Deductibility Explained
Interest Deductibility Made Simple: What New Property Investors Need to Know

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. That means you’ll pay less tax.

What are the current rules?
 
  • Until 31 March 2024: Interest deductions were mostly phased out (0%).
  • From 1 April 2024 – 31 March 2025: You can claim 80% of the interest.
  • From 1 April 2025 onwards: You’ll be able to claim the full 100% again.

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?

Yes, but mainly for how losses are treated:

  • In your own name – you can offset rental losses against your salary or wages. That means a direct tax saving.
  • In a Look-Through Company (LTC) – works the same way as personal ownership. Losses “flow through” to you personally.
  • In a Trust – the trust claims the expenses. If the trust makes a loss, it can’t offset your salary. The loss stays in the trust and carries forward until the trust makes a profit.

    Its 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:

  • Rent: $25,000
  • Interest paid: $30,000
  • Other costs (rates, insurance, maintenance): $10,000
  • Total costs: $40,000
  • Net result: –$15,000 (a loss)

If you own it in your own name, that $15,000 loss reduces your other taxable income.

  • On a $100,000 salary, your taxable income drops to $85,000.
  • At a 33% tax rate, that’s about $5,000 less tax to pay.
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:

  • Improve your cash flow
  • Make it easier to hold properties long-term
  • Reduce the financial pressure in the early years of investing

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.

FEELING INSPIRED? 

Read next: Why invest in a new build.

Ready to invest?

CONTACT US