Interest Deductibility Is Back: What NZ Landlords Need to Know
For the past few years, NZ landlords have been hit by the removal of mortgage interest deductibility. If you own a rental property, you know how much that hurt. The good news? It's coming back. Here's what you need to know.
A quick recap: what happened
In 2021, the government removed the ability for most residential property investors to deduct mortgage interest as an expense. This meant you were paying tax on rental income without being able to offset one of your biggest costs. For many landlords, it turned a modest cash-flow positive property into a cash-flow negative one.
New builds were exempt from the start — if you bought a qualifying new build, you could always deduct 100% of your interest. But everyone else saw their deductibility percentage drop year by year.
The phase-in schedule
The current government is restoring interest deductibility, but it's happening gradually. Here's the timeline:
| Tax year | Deductible % |
|---|---|
| 2023/24 | 50% |
| 2024/25 | 80% |
| 2025/26 onwards | 100% |
That means from the 2025/26 tax year — which you're filing right now — you can claim 100% of your mortgage interest as a deduction against your rental income. Full restoration.
What this means in real dollars
Let's say you have a $500,000 mortgage on your rental at 6.5% interest. That's roughly $32,500 in interest per year. Under the old rules (0% deductibility for existing properties), none of that reduced your taxable income. Now, the full $32,500 is deductible.
If your marginal tax rate is 33%, that's a tax saving of about $10,700 per year. For a landlord who's been wearing that cost for years, it's a major shift in cash flow.
New builds were always exempt
If you bought a qualifying new build, you've been able to deduct 100% of your interest throughout. The phase-in doesn't change anything for you — but it does level the playing field for existing property owners.
Watch for the ring-fencing trap
Even with full interest deductibility restored, the rental loss ring-fencing rules still apply. If your rental expenses (including interest) exceed your rental income, you can't offset that loss against your salary or other income. The loss carries forward and can only be used against future rental income.
This catches landlords who assume a big interest deduction will reduce their overall tax bill. It will reduce tax on your rental income, but it won't generate a loss you can use elsewhere.
What should you do now?
Three things:
- Claim it this year. If you haven't already included 100% of your interest in your 2025/26 return, make sure you do. This is the first year of full restoration.
- Review past returns. If you under-claimed in 2023/24 or 2024/25 (the 50% and 80% years), you may be able to amend those returns. Talk to your accountant.
- Check your other deductions too. Interest is the headline, but many landlords also miss deductions for depreciation, travel, insurance, and more.
Are you claiming everything?
Interest is just one deduction. Our Deduction Finder walks you through every expense you could be claiming — and shows you what you might be missing.
Open Deduction Finder →