Disclaimer:
This article provides general information only and does not constitute financial, legal, tax, or investment advice. Property investment involves risk. Always do your own research and seek personalised advice from qualified professionals before making investment decisions.
Key Takeaways
- Expenses must be incurred in earning your rental income to be deductible.
- Keep receipts and records for all claimed expenses; without documentation, deductions may be denied.
- From 1 April 2025, the interest-limitation percentage is 100%, but interest is deductible only where it is not private and the general deductibility rules are met.
- Private use portions of expenses are not deductible; apportion mixed-use expenses fairly.
- Capital expenditure is not an ordinary repair deduction; depreciation is available only for eligible depreciable property under the applicable rules.
Rental-property expense treatment depends on what was paid, why it was incurred, private use, ownership and whether the cost is revenue or capital. This guide summarises common categories but does not determine a reader’s tax position.
Some costs incurred in earning rental income may be deductible, but exclusions and special rules apply. Residential rental deductions are generally ring-fenced: excess deductions cannot usually be offset against salary or wages and are carried forward for use against residential rental income.
Mortgage Interest
Interest on your rental property mortgage is typically one of the largest deductions for landlords.
Interest Deductibility Restored:
From 1 April 2025, Inland Revenue’s interest-limitation percentage is 100%. That does not make all mortgage interest deductible: the borrowing must satisfy the general rules, the interest must not be private, and tracing and other property rules may apply.
Interest treatment follows the use of the borrowed funds, not merely the property offered as security. Refinancing, mixed-purpose borrowing and later redraws require tracing and may need apportionment or professional tax advice.
Rates and Insurance
Inland Revenue lists rental-property rates and insurance as deductible expenses where the property is not used privately. Apportion mixed or private use and check the treatment of the particular policy and period.
If the property is used partly for private purposes (such as a holiday home you also rent out), you need to apportion these costs based on the rental versus private use.
Repairs and Maintenance
Repairs and maintenance are normally deductible when they restore the property to its previous state, but work that forms part of a wider capital project, remedies an acquisition defect or improves the property may be capital. Classification is fact-specific.
Examples that may be repairs, depending on scope and context:
- Plumbing repairs
- Electrical repairs
- Repainting (same colour/quality)
- Replacing worn carpet with similar
- Fixing broken appliances
- Garden maintenance
- Gutter cleaning
- Pest control
Be careful to distinguish repairs from improvements. Repairs restore something to its original condition, while improvements enhance or upgrade. Improvements are capital expenditure, not immediately deductible.
Property Management Fees
Inland Revenue lists payments to agents who collect rent, maintain the rental or find tenants as deductible expenses. Check invoices and separate any capital, private or unrelated services.
If you manage the property yourself, you cannot claim a notional management fee for your time. Only actual expenses paid to third parties are deductible.
Professional Fees
Some professional fees are deductible, including specified accounting, tenancy, debt-recovery and mortgage-valuation costs. The purpose and amount matter, so legal, valuation and transaction fees should be classified individually.
Professional fees that may be deductible, subject to purpose and rules:
- Accountant fees for rental income/expense work
- Legal fees for tenancy disputes or agreements
- Property inspection fees
- Quantity surveyor fees for depreciation schedules
Inland Revenue says legal fees for buying a rental property may be deductible when the expense is $10,000 or less, while legal fees for selling are generally not deductible unless the owner is in the residential-rental business. Check the current rule and the specific work rather than treating all transaction legal fees alike.
Travel Expenses
Inland Revenue lists travel to inspect a rental property or carry out repairs as a potentially deductible expense. Claim only the income-earning portion, exclude private travel and retain records of purpose and calculation.
Vehicle Expense Options:
- Actual costs: Keep a logbook and claim the business use percentage of actual costs
- Kilometre rate: Claim the IRD mileage rate for business kilometres travelled
If you travel to a distant location to inspect property and combine this with a holiday, only the property-related portion is deductible. Be conservative and keep detailed records of the purpose of each trip.
Advertising and Tenant Finding
Costs to advertise your property for rent and find tenants are deductible. This includes Trade Me listings, newspaper advertisements, signage, and tenant screening fees.
Body Corporate Fees
Body-corporate levy treatment depends on how the funds are used. General maintenance or administration levies are normally deductible; capital-improvement levies are not, and a mixed levy must be reasonably apportioned.
Depreciation
Residential rental land and buildings are not depreciable. Separate assets may qualify only if they meet the depreciation rules and are correctly identified; do not assume every listed fixture is a separate depreciable item.
Depreciable Items:
- Appliances (oven, dishwasher, washing machine)
- Carpets and drapes
- Furniture (if furnished)
- Hot water cylinders
- Heat pumps
- Alarm systems
A depreciation schedule may help identify and value eligible separate assets, but it does not make an item depreciable or guarantee a deduction. Confirm classifications and values under Inland Revenue’s current rules.
Home Office Expenses
A home-office claim requires a sufficient connection to the rental-income activity and a reasonable method for separating business from private use. Eligible costs and calculation methods depend on the circumstances and current Inland Revenue rules.
Keep records of time spent on property management activities to support any home office claim. For most landlords with one or two properties, this deduction is modest.
What You Cannot Claim
Understanding what is not deductible is just as important as knowing what is.
Non-Deductible Expenses:
- Purchase price of the property (capital)
- Capital improvements and renovations (capital)
- Expenses for private use portions
- Your own labour or time
- Fines and penalties
- Legal fees must be classified under the current purchase, sale and business rules rather than treated as universally non-deductible
- Costs to repair initial defects at purchase
Record Keeping
Keep complete income and expense records showing what was paid, when and why, including electronic records, for at least seven tax years. Inland Revenue may request them to support a return.
The Bottom Line
Claiming all legitimate expenses is essential for managing your tax position, but accuracy is equally important. Claiming deductions you are not entitled to can result in penalties and interest if IRD audits you.
Keep thorough records and review the treatment each year. Use a tax agent or other qualified professional when repairs versus capital, financing, ownership, private use, sale costs or ring-fenced deductions are uncertain.