Rental income in New Zealand is fully taxable. Every dollar of rent you receive must be declared as income on your IR3 tax return and is taxed at your marginal income tax rate. Understanding the rules — including what you can deduct and the significant change to mortgage interest deductibility — is essential for every NZ landlord.
All rental income is taxable in NZ at your marginal rate. Key deductions include mortgage interest (now 100% deductible from 1 April 2025 for all residential properties), rates, insurance, repairs, and property management fees. File an IR3 by 7 July. There is no separate "landlord tax" — it is part of your personal income tax. Capital gains on rental property are generally not taxable unless the bright-line test applies.
What Is Rental Income?
You must declare all income received from renting out property, including:
- Weekly or monthly rent payments
- Bond retained for unpaid rent or damage (deduct from expenses in the same year)
- Income from renting out a room in your home
- Short-stay rental income (Airbnb, Bookabach, Vrbo)
- Income from subletting
Not classified as rental income:
- Insurance payouts for property damage (generally non-taxable)
- A sale price when you sell the property (not income — but may be taxed under the bright-line test)
How Is Rental Income Taxed?
Rental income is added to all your other income and taxed at your marginal income tax rate:
| Total taxable income | Rate on that portion |
|---|---|
| $0 – $14,000 | 10.5% |
| $14,001 – $48,000 | 17.5% |
| $48,001 – $70,000 | 30.0% |
| $70,001 – $180,000 | 33.0% |
| $180,001+ | 39.0% |
Example: You earn $95,000 from employment and $25,000 in net rental income ($40,000 rent minus $15,000 in deductible expenses). Your total taxable income is $120,000. The rental income portion falls in the 33% bracket.
There is no separate flat tax for landlords — your employment and rental income are combined.
Deductible Expenses
Deductible expenses reduce your taxable rental income. For the 2025–26 tax year:
| Expense | Deductible? | Notes |
|---|---|---|
| Mortgage interest | Yes — 100% | From 1 April 2025, fully deductible for all residential rentals |
| Council rates | Yes | 100% |
| Insurance | Yes | 100% |
| Property management fees | Yes | 100% |
| Repairs and maintenance | Yes | Revenue repairs (not capital improvements) |
| Depreciation on chattels | Yes | Furniture, appliances at IRD rates |
| Accounting fees | Yes | For tax filing related to the rental |
| Body corporate fees | Yes | For apartments and units |
| Advertising (finding tenants) | Yes | TradeMe listing fees, etc. |
| Travel to property | Yes | Proportional — for inspection, maintenance |
| Legal fees | Yes | Tenancy tribunal, lease preparation |
| Building depreciation | No | Residential buildings not depreciable |
Mortgage Interest Deductibility — The Full Story
This is the area that has changed most dramatically for NZ landlords in recent years.
History:
- Pre-October 2021: Mortgage interest on residential rental properties was fully deductible
- October 2021: Interest deductibility phased out for existing properties (Labour government policy)
- 2024–25: Phase-out reversed by the National government; interest being phased back in
- 1 April 2025 (2025–26 year onwards): 100% deductibility fully restored for all residential rental properties
As of the 2025–26 tax year, you can deduct all mortgage interest on residential rental properties, with no restrictions. This is a significant improvement for landlords who faced years of limited deductibility.
New builds: New builds retained full interest deductibility throughout (they were exempt from the phase-out). Interest on new builds has been 100% deductible continuously.
See our dedicated Residential Rental Interest Deductibility guide for full details.
Repairs vs Capital Improvements
This distinction matters because:
- Repairs (revenue expenditure): Deductible in the year they occur
- Capital improvements: Must be capitalised and depreciated (or added to the property’s cost base)
Revenue repairs (deductible now):
- Fixing a broken window
- Repainting walls to the same colour
- Replacing a broken hot water cylinder with a similar unit
- Minor plumbing repairs
Capital improvements (not immediately deductible):
- Adding a deck or garage
- Extending the property
- Replacing a roof with an upgraded material (beyond like-for-like)
- Major renovations that significantly improve the property
The test: does the expenditure restore the asset to its original condition (repair), or does it create a new asset or significantly improve the existing one (capital)?
Depreciation on Chattels
While the building itself is not depreciable, items of furniture and equipment (chattels) can be depreciated at IRD’s set rates:
| Chattel | Depreciation method | Rate |
|---|---|---|
| Carpet | Diminishing value | 25% |
| Dishwasher | Diminishing value | 25% |
| Fridge/freezer | Diminishing value | 20% |
| Heat pump | Diminishing value | 12.5% |
| Washing machine | Diminishing value | 26% |
| Curtains and blinds | Diminishing value | 25% |
| Stove/oven | Diminishing value | 20% |
Keep an asset register of chattels, their purchase price, and annual depreciation. This is especially valuable for furnished properties.
Filing Your Rental Income
You must file an IR3 tax return by 7 July (or 31 March with a tax agent) and include:
- Total rent received during the tax year
- Total deductible expenses (interest, rates, insurance, management fees, repairs, depreciation)
- Net rental income or loss = Total rent − Total expenses
IRD does not separate rental from other income for tax calculation — everything is combined at your marginal rate.
If you have a rental loss (expenses exceed rent): This loss can offset your employment or other income, reducing your total tax bill. Rental losses can also carry forward to future years if you have no other income to offset.
Ring-Fencing Rental Losses
Prior to 2019, rental losses could offset employment income freely. The ring-fencing rules introduced in 2019 changed this:
- Rental losses from residential rental properties are “ring-fenced” — they can only be used to offset rental income in the same or future years
- They cannot offset employment income or other non-rental income
- Exception: New builds (ring-fencing does not apply) — losses from new builds can offset other income
This makes new build investments more tax-efficient for landlords in a loss-making position.
Owning Rental Property in a Company or Trust
Some landlords hold property through a company (taxed at 28% flat rate) or a trust (taxed at 33%). For most individuals, this is only beneficial at higher income levels where the 33% or 39% personal rate exceeds the entity tax rate. There are compliance and legal costs to consider. Seek advice from an accountant before restructuring.
Frequently Asked Questions
Do I pay tax on the full rent or just the profit?
You pay tax on your net rental income — rent received minus allowable expenses. If expenses equal rent, your taxable rental income is zero.
What happens when I sell a rental property?
New Zealand does not have a general capital gains tax. However, if you sell within the bright-line period (currently 2 years for most properties), the gain is taxable as income. See our Bright-Line Property Tax Rule guide.
Can I claim a loss on my rental and offset it against my wages?
For most residential rentals, no — losses are ring-fenced under the 2019 rules. But if you hold a new build, rental losses can offset wages. Seek advice if this applies to you.
Do I need to charge GST on residential rent?
No. Residential rent is exempt from GST. You do not charge GST, and you cannot claim GST on expenses related to residential rental.
What if I rent out a room in my own home?
Rental income from a room in your principal home is taxable. However, you may be able to use the IRD’s standard cost method — a simplified flat-rate deduction per room rented — instead of tracking actual expenses. See IRD’s guidance on the standard-cost method.