Rental Property Expenses You Can't Claim in NZ

Most guides to landlord tax focus on what you can claim. This one covers the other side: the costs that look like rental expenses but are not deductible. Getting these wrong is one of the most common reasons a rental tax return needs correcting later.

It reflects the rules as at September 2026. It is general information, not tax advice. Our guide to what expenses landlords can claim covers the deductible side.

The three kinds of cost you cannot claim

You cannot claim deductions for:

• Capital expenses. The cost of buying a capital asset, or of increasing its value. Buying the property and making improvements both fall here.
• Private expenses. Things you buy or pay for your own benefit rather than to earn rental income.
• Expenses not directly related to the rental property.

Every item below falls into one of those three groups.

Buying and selling costs

• The purchase price of the rental property.
• Real estate agent fees charged as part of buying or selling the property.
• The cost of finding a suitable property, including checking its condition before you buy, such as a building report.

Legal fees are the exception: if your total legal fees for the year are $10,000 or less, the legal costs of buying a rental can be deducted. Our guide to whether property management fees are tax deductible covers professional fees in more detail.

Mortgage costs

• The principal portion of your mortgage repayments. Only the interest is deductible.
• Interest on money borrowed for anything other than the rental, such as a car or a holiday, even if the loan is secured against the rental.

The rules on what interest you can claim are covered in our guide to interest deductibility.

Improvements, not repairs

Repairs that restore the property to its earlier condition are deductible. Work that improves it is capital. Examples that cannot be claimed as an expense:

• Renovating a run-down property to significantly improve or alter it.
• Removing a deteriorated wall and replacing it with a new bedroom.
• Repairing or replacing a damaged part of the property where the work increases its value.

The line between repair and improvement can be tricky. Our guide to depreciation and capital improvements explains how Inland Revenue draws it.

Bringing a substandard property up to scratch

If you buy a property that needs work before it can be rented, the cost of bringing it up to the required condition is capital. That includes:

• substantial repairs that were needed at purchase, such as an existing roof
• Healthy Homes items that did not exist when you bought it, such as a new underfloor moisture barrier.

The condition of the property when you acquired it is the benchmark. Our guide on whether Healthy Homes costs are tax deductible works through examples.

Your own time

If you do repairs and maintenance yourself, you can claim the materials, but not the value of your own labour. That is often a surprise to owners who spend weekends on their rental.

Depreciation on the building

You can claim depreciation on chattels and fittings you have bought for the rental, but not on the land or the residential building itself. That was not always the case, which is why older advice can be misleading.

Part-year rentals

If the property is not rented, or not available to rent, for the whole year, you cannot claim the full year's ongoing costs, such as rates, insurance and interest. That applies if:

• the property was not occupied by tenants and was not available to rent for part of the year
• you or your family lived in it for part of the year
• it was off the market for a renovation
• it was only available to rent for part of the year.

In those cases, the ongoing costs need to be apportioned to the time it was rented or genuinely available. A property that is empty between tenants but advertised and available is different, and its costs can generally still be claimed.

Long gaps between tenancies cost more than the lost rent. Our guide to the cost of vacancy and how to reduce it covers how to keep them short.

GST

GST is not charged on long-term residential rent, so rental income does not go in a GST return, and most landlords are not registered. If you are registered for another activity, do not include the rent in your GST returns.

Body corporate capital levies

For apartments and townhouses, levies raised to fund capital improvements to the building are not deductible, even though general levies usually are. Our guide on whether body corporate levies are tax deductible explains how to split them.

Avoiding the common mistakes

• Ask for itemised invoices that separate repairs from improvements.
• Keep loan records that show what each drawdown paid for.
• Keep a log of any period the property was not available to rent.
• Do not claim your own time.
• Ask before you claim anything large or unusual.

Inland Revenue's page on residential rental property deductions explains how deductions are claimed and ring-fenced.

A managed property makes most of this easier, because every repair and invoice comes through one end-of-year statement. If you would like that for your rental, our process explains how we work, and a free rental appraisal is the place to start.