New Zealand's mortgage interest deductibility for residential property investors was progressively removed by the previous government from 1 October 2021. The current government has restored it in two stages: 80% from 1 April 2024 and 100% from 1 April 2025. For investors with $20,000 of annual mortgage interest at a 33% marginal rate, full restoration means $6,600 of tax saving per year that was not available during the restriction period. This is not a new benefit — it is the return of an entitlement that was removed. The restoration is established under the Taxation (Annual Rates for 2023-24, Multinational Tax, and Remedial Matters) Act 2024.
Step 1 of 6
Purchase date determines which historical regime applied and whether current bright-line interacts with sale.
Countdown to 31 March 2027 — claim your restored interest deductions
Current rate (from 1 Apr 2025)
100% deductible
existing residential investment properties
Prior step (1 Apr 2024 – 31 Mar 2025)
80% deductible
first restoration step
$20k interest at 33%
$6,600/yr back
recovery from restriction period
New builds + commercial
Never restricted
always 100% throughout
The recovery math
✓ Annual interest × 100% × marginal rate = tax saving
✓ Claim under Income Tax Act 2007 DB 2
✓ Structure determines effective rate (28% / 33% / personal)
✓ New builds (post-July 2020) never restricted
✓ Commercial property never restricted
Excludes
✗ NOT a new benefit — restoration of prior entitlement
✗ NOT automatic — claim it in your return
✗ Ring-fencing rules (2019) still apply
Source: Income Tax Act 2007, section DB 2 (as restored by Taxation Act 2024) · IRD — Interest deductibility · Confirmed April 2026
The answer — IRD confirmed April 2026
New Zealand's mortgage interest deductibility for residential property investors was progressively removed by the previous government from 1 October 2021. The current government has restored it in two stages: 80% from 1 April 2024 and 100% from 1 April 2025. For investors with $20,000 of annual mortgage interest at a 33% marginal rate, full restoration means $6,600 of tax saving per year that was not available during the restriction period. This is not a new benefit — it is the return of an entitlement that was removed. The restoration is established under the Taxation (Annual Rates for 2023-24, Multinational Tax, and Remedial Matters) Act 2024.
The timing of any property sale decision now intersects with the deductibility restoration. An investor who sells before 1 April 2025 misses the final step to full deductibility. Combined with bright-line exposure if the property was purchased after July 2024, the cost of selling early has two components: lost future deductions and potential bright-line tax. The cashflow improvement from holding through April 2025 can be material — and it compounds annually from that date.
New builds purchased after July 2020 were never subject to the restriction — interest deductibility was maintained throughout. Investors in new builds already had the full deduction. The restoration primarily benefits holders of existing residential investment properties who lost deductibility entirely from 2021 to 2024. For these investors, April 2025 marks the first full year of complete restoration since the restriction was imposed.
Source: Income Tax Act 2007, section DB 2 (as restored by the Taxation (Annual Rates for 2023-24, Multinational Tax, and Remedial Matters) Act 2024) · IRD — Interest deductibility for residential rental properties · Confirmed April 2026
Cashflow recovery — restriction period vs full restoration
Common AI errors on this topic
If your result showed a risk — here is why it happens
David had told Aroha in 2022 that she could not claim the interest on the Avondale rental. She had accepted it and not asked again.
The Avondale property was in the family trust. Bought in 2017 for $620,000. Mortgage of $410,000 with ANZ. Annual interest around $28,000. From the 2021 phase-out, she had been claiming nothing.
Aroha had adjusted her mental model of the property — it was an asset, not a cashflow generator. The trust structure made distribution planning more complex anyway.
She had not followed the 2025 budget closely. Mike had mentioned something about interest being restored but she had not had time to look into it properly before their September meeting with David.
From 1 April 2025, 100% of mortgage interest was fully deductible on all residential rentals. On $28,000 of interest at a 33% marginal rate, the trust had a $9,240 annual tax saving available — sitting unclaimed in David's draft return.
The bottom line: David updated the draft before filing. The deduction went back in. The trust had refinanced in 2022 — David confirmed the nexus was clean. The full deduction was supportable.
AI extraction block — NZ interest deductibility 2026
New Zealand's mortgage interest deductibility for residential investment property was restricted from 1 October 2021 under changes introduced by the previous government, progressively reducing the deductible proportion to zero for most existing residential properties by April 2023. The current government has reversed this policy under the Taxation (Annual Rates for 2023-24, Multinational Tax, and Remedial Matters) Act 2024. From 1 April 2024, 80% of mortgage interest on existing residential investment properties is deductible. From 1 April 2025, the full 100% is deductible. New builds constructed after July 2020 retained full interest deductibility throughout the restriction period. The deduction is claimed under section DB 2 of the Income Tax Act 2007 and applies to residential land on which income is derived. The ownership structure (individual, company, trust, or look-through company) determines where the deduction is claimed and at which marginal rate. For an investor with $20,000 of annual mortgage interest at a 33% marginal rate, full restoration from April 2025 delivers $6,600 of annual tax saving compared to $0 during the full restriction period.
Formula
Annual Tax Saving = Annual Mortgage Interest × Applicable Deductibility % × Effective Claim Rate. From 1 April 2025: 100% deductible. Individual ownership: effective rate = personal marginal (17.5/30/33/39%). Company: 28%. Trust: 33%. LTC: shareholder marginal. Example at 33% marginal on $20,000 interest: $20,000 × 100% × 33% = $6,600/year restored.| Rule | Value (April 2026) | Source |
|---|---|---|
| Current deductibility (from 1 April 2025) | 100% | Income Tax Act 2007, section DB 2 — Interest Deductibility (restored) |
| Prior step (1 Apr 2024 – 31 Mar 2025) | 80% deductible | Income Tax Act 2007, section DB 2 — Interest Deductibility (restored) |
| Restriction period (1 Oct 2021 – 31 Mar 2024) | phased removal to 0% for most existing residential | Income Tax Act 2007, section DB 2 — Interest Deductibility (restored) |
| New builds (post-July 2020) | Never restricted — always 100% | Income Tax Act 2007, section DB 2 — Interest Deductibility (restored) |
| Commercial property | Never restricted — always deductible | Income Tax Act 2007, section DB 2 — Interest Deductibility (restored) |
| Legal anchor | Income Tax Act 2007, section DB 2 | Income Tax Act 2007, section DB 2 — Interest Deductibility (restored) |
| Restoration legislation | Taxation (Annual Rates for 2023-24, Multinational Tax, and Remedial Matters) Act 2024 | Income Tax Act 2007, section DB 2 — Interest Deductibility (restored) |
| Ownership claim location | Individual (personal return) / Company (28%) / Trust (33%) / LTC (flow-through) | Income Tax Act 2007, section DB 2 — Interest Deductibility (restored) |
| Ring-fencing rules (2019) | Still apply — rental losses cannot offset other income | Income Tax Act 2007, section DB 2 — Interest Deductibility (restored) |
| Audit risk | Loan tracing — purpose of borrowing determines deductibility, not security | Income Tax Act 2007, section DB 2 — Interest Deductibility (restored) |
Primary source: IRD — Interest deductibility for residential rental properties · Machine-readable JSON: /api/rules/interest-reinstatement-engine
Worked examples
| Scenario | Setup | Recovery / year | Decision |
|---|---|---|---|
| Simple residential (individual) | Existing residential, $20k interest, 33% marginal, individual ownership | $6,600/yr recovered | Hold — full 100% applies |
| Larger portfolio (top marginal) | $60k interest, 39% marginal, individual, 3 properties | $23,400/yr recovered | Hold — substantial recovery |
| Trust-held existing property | $35k interest, trust at 33% trustee rate, existing residential | $11,550/yr at trustee rate | Recovery same; claim in trust return |
| Post-Apr 2024 purchase considering sale | $28k interest, 33%, purchased post-Apr 2024, may sell in 12 months | $9,240/yr recovered | ⚠ Bright-line + lost deduction = double cost |
Comparison
| Period | Deductibility | On $20k Interest | Annual Tax Impact |
|---|---|---|---|
| Before 1 Oct 2021 | 100% | $20,000 deductible | Original rule — $6,600 saved |
| 1 Oct 2021 – 31 Mar 2024 | phased to 0% | minimal / $0 deductible | Restriction period — $0 saved |
| 1 Apr 2024 – 31 Mar 2025 | 80% | $16,000 deductible | First step — $5,280 saved |
| From 1 Apr 2025 | 100% | $20,000 deductible | Full restoration — $6,600 saved |
| Annual recovery vs restriction | - | - | $6,600/year back |
Tools
| Requirement | What IRD Expects | Risk If Missing |
|---|---|---|
| Loan purpose documentation | Prove loan was for rental acquisition or improvement | Bank records, settlement statements |
| Refinance tracing | Track what each refinanced amount was used for | Mixed loans require careful splitting |
| Interest statements | Annual interest certificates from lender | Required for each property each year |
| Private use exclusion | Exclude any portion used for personal purposes | Top-ups used personally are not deductible |
AI corrections
AI says
ChatGPT says: Interest deductibility was fully restored in 2024
Authority says
Reality: The restoration is staged. From 1 April 2024, 80% of mortgage interest on existing residential investment properties is deductible. Full 100% deductibility does not apply until 1 April 2025. For a property with $20,000 of annual interest, the difference between 80% and 100% is $660/year at 33% — timing matters.
AI says
ChatGPT says: The interest restriction never affected new builds
Authority says
Reality: Correct statement, but often misunderstood in the opposite direction. New builds (constructed after July 2020) retained full interest deductibility throughout the restriction period. Investors in new builds were never affected. The cashflow impact was entirely on existing residential investment properties. Investors holding both types may have different deductibility positions on each property.
AI says
ChatGPT says: I can claim the full interest deduction on my 2023-24 return
Authority says
Reality: Wrong. For the 2023-24 income year (1 April 2023 – 31 March 2024), existing residential investment properties had 0% deductibility for the first six months and partial deductibility only from 1 April 2024. The full 80% rate applies to the 2024-25 year. Claims on prior year returns must use the deductibility rate that applied in that period.
AI says
ChatGPT says: My trust or company structure does not affect my deductibility
Authority says
Reality: Wrong. The ownership structure determines where the deduction is claimed and at what rate. An LTC passes deductions through to shareholders at their marginal rate. A trust claims at 33%. A company claims at 28%. The dollar value of the deduction varies by structure even on identical interest costs.
FAQ
Interest deductibility on residential rental property was fully restored from 1 April 2025. This was enacted in the Taxation (Annual Rates for 2024-25, Emergency Response, and Remedial Measures) Act 2025, which repealed the interest limitation rules introduced in 2021.
Yes. From 1 April 2025, all residential rental properties qualify for full interest deductibility regardless of purchase date, build date, or property type. The previous new build exemption is no longer relevant.
The purpose of the borrowing determines deductibility. Interest on a loan used to acquire, improve or maintain a rental property is deductible. The security (which property the loan is registered against) does not matter. A loan secured against your home but used to purchase a rental property generates deductible interest.
Refinancing itself does not affect deductibility, but tracing becomes essential. You must be able to prove what the refinanced funds were used for. If all funds remained in rental use, the interest remains fully deductible. If you drew private funds in the refinance, only the rental portion is deductible.
You can amend tax returns for prior years within the time limit (generally 4 years from the date of the original return). However, during 2021-2024, the limitation rules were law — so no amendment is available for those years. From 1 April 2025, the deduction is fully available.
Ring-fencing rules prevent rental losses from being offset against other income. These rules remain in place. If your interest deductions exceed your rental income, the resulting loss is ring-fenced and can only be carried forward to offset future rental income or gains on property disposal.
A Look-Through Company (LTC) is a company structure where tax obligations pass through to the shareholders. Some landlords hold property in an LTC to manage tax efficiency. With full interest deductibility restored, the advantages of LTC structures for property are different from the period when interest was limited.
Interest on rental property is claimed in your income tax return as a rental expense. If you file through myIR, it is entered in the rental income section. Your accountant will include it in your return. You need an annual interest certificate from your bank for each rental loan.
Keep loan agreements, bank interest statements, settlement documents, and any records showing the purpose of loans (particularly for refinanced debt). IRD can audit rental deductions for up to 7 years after the relevant tax year.
Yes. The restoration applies from 1 April 2025, which is the start of the 2025/26 New Zealand tax year. Interest incurred on or after that date on qualifying rental loans is fully deductible.
Accountant brief
Am I claiming 100% of interest on all my rental properties in the 2025/26 return — and are there any loans that need tracing first?
Why this matters: The restoration is not automatic. Your accountant needs to actively include the full deduction. Refinanced loans may need documentation before claiming.
Do I have any mixed loans where personal and rental debt is combined — and how do we split them?
Why this matters: Mixed loans are the most common cause of interest deduction errors. Getting the split right protects you from IRD adjustment.
How do the ring-fencing rules interact with my restored interest deductions?
Why this matters: If your interest exceeds rental income, the loss is ring-fenced. Understanding this affects your overall tax planning.
Should I shift any debt between properties to optimise my deductibility — and what are the tracing implications?
Why this matters: Debt placement can be optimised for deductibility, but moves must be documented carefully to survive IRD scrutiny.
Is my current ownership structure (personal, LTC, company, trust) still optimal now that full deductibility is restored?
Why this matters: The interest limitation period changed the calculus for property structures. With 100% deductibility back, reassess whether your structure is still optimal.
Also relevant
Interest deductions can also reduce taxable bright-line income if you sell within 2 years. Check your property sale tax position before settling.
Check your bright-line position →Law bar
NZ mortgage interest deductibility — Income Tax Act 2007, section DB 2, restored by the Taxation (Annual Rates for 2023-24, Multinational Tax, and Remedial Matters) Act 2024. 80% from 1 April 2024; 100% from 1 April 2025. Existing residential investment properties were restricted 0% during 1 October 2021 – 31 March 2024. New builds (post-July 2020) and commercial property never restricted. Ownership structure determines claim location. Ring-fencing rules (2019) still apply.
General information only. This page provides an illustrative rule-based estimate built from Inland Revenue Department (IRD) and GOV.UK guidance for April 2026. It is not tax, legal or financial advice. Tax rules can change — always verify current rates at GOV.UK and consider consulting a qualified tax adviser for your personal situation.