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 has phased in restrictions on interest deductions for residential rental properties. As of the 2026 tax year:

Properties acquired before 27 March 2021: Interest deductibility was progressively phased out and is now largely restricted. However, a new rule for 2026 allows 80% interest deductibility for existing properties, increasing to 100% from 1 April 2026.
Properties acquired on or after 27 March 2021: Interest deductions are generally restricted — check with IRD for the latest transitional rules.
New builds: Exempt from the interest limitation rules. Interest on loans for new build properties is fully deductible.
Business premises: Not affected — commercial and business properties are exempt from the interest limitation rules.

The rules are complex and have been subject to change. 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 2025)
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.