Rental Income Tax
Updated for 2026 IRD rates
Overview of Rental Income Tax
If you own a rental property in New Zealand, the income you receive from rent is taxable. You must declare it in your annual tax return and pay tax on the net rental profit (rental income minus allowable expenses). Losses from rental properties can generally be used to offset other income, subject to certain rules.
Allowable Rental Expenses
You can deduct expenses that are incurred in earning the rental income. Common allowable expenses include:
- Rates and insurance — Council rates, body corporate fees, and landlord insurance
- Property management fees — Fees paid to a real estate agent or property manager
- Repairs and maintenance — Day-to-day repairs to keep the property in tenantable condition (not capital improvements)
- Interest — But see the interest limitation rules below
- Travel expenses — Travel costs for property inspections or maintenance (limited, strict rules apply)
- Legal and accountancy fees — Fees for tax advice, tenancy tribunal applications, and lease preparation
- Depreciation — On chattels (carpets, appliances, curtains) but not on buildings (depreciation on buildings was removed from 2011)
- Advertising for tenants — Costs of listing and advertising a vacant property
Interest Limitation Rules
New Zealand's residential property interest limitation rules were repealed. As of the 2026 tax year:
- All residential rental properties: Interest deductions are 100% deductible again. The restriction was fully removed from 1 April 2025, so landlords can deduct all interest on residential rental loans.
- Properties acquired before 27 March 2021: No longer subject to any interest limitation — fully deductible from 1 April 2025.
- Properties acquired on or after 27 March 2021: Also fully deductible from 1 April 2025 — the phase-back completed and the rules were repealed.
- New builds: Interest was always fully deductible for new builds.
- Business premises: Not affected — commercial and business properties were always exempt from the interest limitation rules.
The rules were repealed as part of the coalition government's 2024 tax changes, restoring full interest deductibility from 1 April 2025. Consult a tax professional for your specific situation.
Bright-Line Test
The bright-line test determines whether you pay tax on the profit from selling a residential property. For the 2026 tax year:
- Properties sold within 2 years: The bright-line test applies and the gain is taxable (this was the original rule, restored from 1 July 2024)
- Main home exclusion: Your main family home is generally excluded from the bright-line test
- New builds: Subject to a 5-year bright-line period
The bright-line start date is the date the property was registered in your name at Land Information New Zealand (LINZ).
Filing Rental Returns
Rental income is reported in your annual tax return (IR3 for individuals). You need to include:
- Total rental income received
- Total allowable expenses
- Net rental profit or loss
- Information about your mortgage and interest payments
Keep detailed records of all income and expenses, including invoices, receipts, tenancy agreements, and bank statements. IRD may request these to verify your return.
Interest Deductibility: Fully Restored From 1 April 2025
The interest limitation rules that restricted deductions on residential rental property are now behind us: from 1 April 2025, interest on loans for residential rental properties is 100% deductible again (the phase-in restored 80% for the 2024/25 year). This matters for both cash flow and property structure — a highly geared rental property becomes meaningfully more tax-efficient. One important caveat: the restoration applies to interest on the rental property's own borrowing. If you have redrawn equity for personal purposes, that portion of interest remains non-deductible, so keep a clean paper trail linking borrowing to the rental property. New builds were always exempt from the limitation, and that exemption continues to apply alongside the full restoration.
Bright-Line, Ring-Fencing and the 39% Rate
Three rules shape rental property tax in 2025/26. First, the bright-line test now captures only properties sold within 2 years of purchase (reduced from 5/10 years from 1 July 2024) — beyond two years, residential gains are generally not taxed (the main home exemption protects your own home). Second, ring-fencing still applies: rental losses can only offset rental income (and certain other property income), not your salary — with an exception for new builds and a carry-forward of unused losses. Third, rental income is taxed at your marginal rate up to 39% for high earners, and the bright-line gain (when it applies) is taxed as income at your marginal rate too. If you are selling within the bright-line window, get the calculation right — the gain is not eligible for the main home exemption unless the property was genuinely your main home.
Related Guides
Deep dive — 2026 update
Interest deductibility on a $700,000 mortgage
Interest deductibility for residential investment property was fully restored from 1 April 2025 for properties that meet the rules, having been phased back in stages. The size of that change, at 6.5%:
| Mortgage | Annual interest | Deduction at 33% | Tax saved vs no deduction |
|---|---|---|---|
| $500,000 | $32,500 | $32,500 | $10,725 |
| $700,000 | $45,500 | $45,500 | $15,015 |
| $1,000,000 | $65,000 | $65,000 | $21,450 |
Two limits still bite. First, the ring-fencing rules: a residential rental loss cannot offset your salary — it carries forward to be used against future rental profits. Second, new-build and existing-property rules interact with the bright-line test, so a property sold within the bright-line period faces tax on the gain at the investor's marginal rate, up to 39%.
Bright-line dates that matter in 2026
| When the property was acquired | Bright-line period |
|---|---|
| Before 29 March 2018 | No bright-line test |
| 29 March 2018 – 26 March 2021 | 5 years |
| 27 March 2021 onwards, non-new-build | 10 years if sold before 1 July 2024; 2 years if sold on or after 1 July 2024 |
| 27 March 2021 onwards, qualifying new build | 5 years |
For a sale on or after 1 July 2024, the test asks whether the bright-line end date (usually the date the sale settles) is within 2 years of the bright-line start date. A property bought in March 2023 and sold in February 2026 is outside the 2-year window and not caught, even though it was held for only three years.
Deductions people forget
- Insurance, rates and body corporate fees — fully deductible against rental income.
- Property manager fees (typically 7%–8.5% plus letting fees) — deductible.
- Repairs and maintenance — deductible; replacements of an entire asset (a new roof, a new kitchen) are capital and depreciated instead.
- Travel to inspect the property — deductible if the purpose is genuinely the rental, and the claim is proportionate.
- Healthy Homes compliance work — generally deductible if it is repair or maintenance; capital improvements are not.
- Depreciation — no longer available on residential buildings (since 2011), but chattels such as appliances, carpets and curtains can be depreciated on a chattel valuation.