May 21, 2026

Rental Property Deductions in NZ and What You Can Claim in 2026

TaxProperty

Have you heard of the Ring-fencing rules? These residential rental property deduction rules are essential for property investors to understand.

You have just finished your rental property tax return. The bill looks higher than you expected it to be. Then a neighbour mentions a deduction you’ve never claimed. That sinking feeling is common among Bay of Plenty property investors.

If you find yourself in a similar situation and are about to file your tax returns, then you’ll be glad to know that rules are clearer today than they were several years ago. We’ll walk you through what you can claim, and how the rules work this year.

Quick Summary

Rental property deductions are the running costs you can claim against your rental income to lower your tax. In 2026, you can claim expenses like rates, insurance, property management fees, repairs, and mortgage interest, which is fully deductible again from 1 April 2025. You can’t claim the purchase price, the loan principal, or the cost of improving the property. Ring-fencing rules mean you offset these deductions only against rental income, never against your salary or wages. Any excess residential rental deductions carry forward to a future year, so you do not lose them.

What’s deductible on your rental in 2026 (and what’s not)

You can deduct the day-to-day running costs of a residential rental, but not the capital costs of buying or improving it. This single distinction explains most of what you can and can’t claim claim. If you’re searching Google for answers to “what can you claim on a rental property NZ”, running costs are the short answer.

Inland Revenue lets you deduct expenses that keep the property earning. The rental property expenses you can claim are the running costs. The capital costs of buying or improving the property are not.

Here’s an overview of what you can, and can’t, deduct.

You can deduct	You can’t deduct
Rates and insurance	The purchase price of the property
Mortgage interest (now 100% from 1 April 2025)	The principal part of your loan
Property management and letting fees	Improvements, such as a new room or heat pump
Repair and maintenance costs	Repairs that increase the property’s value
Accountancy and tax return fees	Depreciation on the land or building
Depreciation on chattels like carpets and appliances	Your own labour on repairs
Mortgage arranging and tenancy agreement fees	Real estate fees for buying or selling
Travel to inspect or repair property	Legal fees for selling the rental

The difference between repair and maintenance, and a capital improvement matters here. Repairs restore the property to its earlier state, like fixing a broken window or repainting a room. Improvements add something new, like a heat pump where none existed or double glazing. Repairs are deductible. Improvements aren’t.

Another change is worth mentioning: the interest deductibility rules returned to 100% from 1 April 2025. For most landlords, mortgage interest is the single largest rental expense, so this is a welcome shift.

How ring-fencing limits your residential rental deductions

Ring-fencing means you can claim residential rental deductions only against your rental income, not against your salary or other income. This is the rule that surprises many first-time landlords.

Inland Revenue calls these the residential property deduction rules, and has been enforcing them since 2019. You can claim deductions up to the amount of rental income you earn in a year, including income from selling the property. Because the deductions are ring-fenced, you can’t use a rental loss to reduce tax on income such as salary or wages.

The ring-fencing rules apply if you own residential rental property as an individual, a partner in a partnership, a shareholder in a look-through or close company, or a trustee. They cover all your residential rental properties and residential land. These include overseas property.

Since the 2022 income year, they also cover short-stay accommodation that is not your main home, such as an Airbnb or Bookabach listing. These rules are sometimes considered as ring-fencing rental losses.

Some property sits outside these rules, though. The rules don’t apply to your main home, even to a holiday home caught by the mixed use asset rules. Farmlands, or property used mainly as business premises, are also included. If you’re unsure how the rules apply to your situation, this is the best time to ask for advice.

Excess residential rental deductions carry forward

Excess residential rental deductions are carried forward to future years. You can use them later, when the same property or another portfolio makes a profit. This is the answer to a question many investors ask each tax year.

When your deductions are more than your rental income, the difference is your excess. In practice, this means your residential rental deductions claimed this year are less than the amount available to claim. The unused portion doesn’t disappear. Instead, your excess residential rental deductions carried forward this year become your excess residential rental deductions brought forward the following year.

You keep carrying them forward until the property makes enough rental income to absorb them. There’s one important caveat. If you sell a property and the sale is taxable, you can use the excess deductions against that sale income. Inland Revenue sets out how residential rental property deductions work, so it’s best to be familiar with them as well.

The dollar impact on a Bay of Plenty rental

Claiming every deduction on a typical Bay of Plenty rental can change your tax bill by thousands of dollars. Here’s an example that shows why this is worth your attention. All figures below are illustrative.

Picture a Mount Maunganui rental that earns 35,000 dollars in rent for the year. The owner has a 300,000-dollar mortgage at 6.5%, so the interest is about 19,500 dollars. Add rates of 3,200 dollars, insurance of 2,400 dollars, property management of 2,800 dollars, repairs of 2,500 dollars, and accountancy fees of 900 dollars. Total deductible expenses come to about 31,300 dollars.

That leaves taxable rental income of 3,700 dollars. At a 33% marginal rate, the tax on the rental is about 1,221 dollars. Now imagine the owner forgot the 2,500 dollars of repairs. Their profit would jump to 6,200 dollars, and their tax would rise to about 2,046 dollars. That single missed deduction costs 825 dollars.

The interest change adds to this. Under the old 80% limit, only 15,600 dollars of that interest would have been deductible. The return to full deductibility means the owner now claims the whole 19,500 dollars on this one rental. That is 3,900 more in deductions, or roughly 1,287 less tax at the same rate.

These numbers are pretty straightforward. These are actual savings in your pocket for each income year.

Having a records checklist makes your rental property deductions easy to claim

To confidently file a claim, keep dated records of your rental expenses and match your income and expenses each tax year. Inland Revenue expects you to keep these records for at least seven years.

Use this checklist to gather what your accountant will need:

Rates notices and insurance schedules for the property
Annual statements from your property manager
Invoices for repairs and maintenance, kept separate from any improvements
Loan statements that show the interest you paid
Accountancy and tax agent fees
A chattels schedule for depreciation on carpets, appliances, and similar items
Records of any legal fees for buying the rental

Remember to do these two things to make tax time easier. First, file repair invoices and improvement invoices separately, because only repairs are deductible. Second, keep your purchase and sale documents safe. If you sell within two years, the bright-line test may tax the gain, and your records will decide the outcome. Remember to record your expenses at the GST-inclusive amount, since residential rent is exempt from GST.

Frequently asked questions

What can you claim on a rental property in NZ?

You can claim the running costs of the property against your rental income. These include rates, insurance, property management fees, repairs and maintenance, accountancy fees, and mortgage interest. You can’t claim the purchase price, the loan principal, or the cost of improvements.

What are residential rental deductions?

Residential rental deductions are the allowable expenses you claim against rental income to work out your taxable income. They lower the tax you pay on what your rental earns. They are governed by the residential property deduction rules, also known as the ring-fencing rules.

What happens to excess residential rental deductions?

Excess residential rental deductions are carried forward to a future income year. You use them when the property next makes rental income, or when a taxable sale releases them. You don’t lose them in a loss-making year.

What is the ring-fencing rule for rental properties?

The ring-fencing rule limits your residential rental deductions to your rental income. You can’t offset a rental loss against other income such as salary or wages. Any unused deductions carry forward instead.

Can I offset rental property losses against my salary?

No. Ring-fencing rules stop you offsetting residential rental losses against your salary or wages. The loss is held back and carried forward, then used against future rental income or a taxable sale.

Can I claim mortgage interest on a rental property in NZ?

Yes. From 1 April 2025, you can claim 100% of the interest on loans for a residential rental. This reversed the limits that applied between 2021 and 2025. You still claim only the interest portion, not the loan principal.

Are rental property repairs tax-deductible?

Yes, if the work restores the property rather than improving it. Repainting a room or fixing a window is deductible. Adding a room or installing double glazing is a capital improvement and isn’t deductible.

How Ingham Mora helps WBOP property investors

If your last return felt disappointing, then a review is often the quickest way to make sense of it. We help Western Bay of Plenty property investors claim what they are entitled to. Since interest deductibility returned to 100% from 1 April 2025, many local rentals are now in a stronger position, and it is worth checking yours as well.

We can review last year’s return for missed deductions, set up a chattels schedule so your depreciation is right, and confirm your ring-fencing position.

Our approach is practical and tailored to how you actually run your rental, whether you own one home in Mount Maunganui or a small portfolio from Katikati to Te Puke.

Unsure what you can claim on your WBOP rental this tax year?

Get in touch with any of our property specialists, who can review your situation and find deductions you may have missed.

This article is general information, current as at June 2026, and is not personalised tax advice. Tax rules can change, so please talk to us about your own situation before taking action.