Interest Deductibility

Interest Deductibility refers to the tax rules in New Zealand that determine whether residential property investors can claim mortgage interest expenses as a deduction against their rental income. Following legislative changes, the NZ government has progressively phased out interest deductibility for existing rental properties purchased before March 27, 2021, while completely removing it for properties acquired after that date.

For properties purchased before March 27, 2021, interest deductibility has been phased out: 75% deductible (2021-22), 50% (2022-23), 25% (2023-24), and 0% from April 1, 2024 onwards. New builds (properties issued with a Code Compliance Certificate within the last 12 months) can claim full interest deductions for 20 years from the CCC date. This policy aims to improve housing affordability by discouraging property investment.

Real-World Example If Daniel owns a rental property purchased in 2019 with $15,000 annual mortgage interest, he can no longer deduct this interest from his rental income as of April 2024. This increases his taxable rental income by $15,000, resulting in approximately $4,500-$5,850 more in tax (at 30-39% marginal rate), significantly impacting his investment returns.