Many New Zealand landlords may not realise just how many of their rental property expenses related to owning and managing rental properties are eligible for tax deductions. With fluctuating interest rates and evolving tax policies, it’s more crucial than ever for property owners to maximise their investment returns.
Here’s an overview of claimable expenses for landlords and property owners to get the most out of their rental income.
What is tax deductibility?
In the context of rental or investment properties, tax-deductibility refers to the ability to reduce your taxable rental income by deducting certain expenses related to managing, maintaining, or financing the property.
When an expense is tax-deductible, it can be subtracted from the rental income you earn before calculating your tax obligation. This deduction lowers the portion of your rental income that is subject to tax, ultimately reducing your tax bill.
What Expenses Can I Claim as an Auckland Landlord?
Insurance and Rates
You can claim the full cost of insuring your rental property, as well as council rates associated with the property’s ownership. These routine expenses can significantly impact your budget, so claiming them helps offset their effect on your bottom line.
Interest Costs
Interest deductions on residential investment properties have gone through recent changes. From 1 April 2024, landlords will be able to claim 80% of their interest costs for funds borrowed to finance a residential property, regardless of when the property was acquired or the loan was drawn down. By 1 April 2025, 100% interest deductibility will be restored, providing landlords with full relief on interest expenses.
What is interest deductibility? It allows landlords to deduct the interest paid on a mortgage for their rental property from their taxable rental income.
Visit the Inland Revenue Department website here for further information on your taxable income.
Property Management Fees & Commission
Property management fees paid to professional property managers for overseeing your rental property are fully deductible. This includes any property management fees for tasks like tenant relations, coordinating maintenance, and ensuring rent collection.
Even if you primarily manage the property yourself but engage professionals for specific services -such as tenant screening, lease renewals, property inspections, or organising repairs – those property management fees are also fully deductible, as they directly support the management and upkeep of the property.
Accountant Fees
Expenses related to tax preparation, accounting services, and general tax advice are deductible. This includes:
- Preparation of your accounts
- Filing of tax returns
- Ongoing tax guidance
Note: Initial setup costs of an investment property are not deductible.
Legal Fees
If your legal fees for a given year are $10,000 or less, you can claim them for buying rental properties. Those actively in the business of providing residential rentals may also claim legal fees incurred when selling properties from their portfolio. It’s advisable to consult with a chartered accountant to confirm if your situation qualifies.
Repairs and Maintenance
Repair and maintenance costs are deductible, provided they aren’t substantial improvements. Examples include:
- Replacing a broken showerhead
- Patching and painting a wall crack
- Replacing a faulty hot water cylinder element
If the work constitutes an upgrade (e.g., converting a wall into an extra room), it would be considered a capital improvement and therefore non-deductible. Distinguishing between repairs and capital improvements can be complex, so expert advice may be beneficial.
Learn more about property maintenance and repairs here.
Other Deductible Expenses
Some other expenses landlords may claim include:
- Body Corporate Fees(for apartments or units)
- Mortgage Arrangement Fees
- Drawing up a tenancy agreement
- Valuation Fees
- The costs of taking legal action to recover unpaid rent
- Water Rates(if paid by the landlord)
- Tenant Gifts
- Travel expenses associated with managing your property
Depreciation
Depreciation is another form of claim available to cover the wear and tear of items like furniture and fittings. While property buildings and land are not eligible for depreciation, landlords can still claim depreciation on certain assets, provided each asset is valued over $1,000. However, smaller items (under $5,000) can be grouped to streamline claims.
Note: Since this is a complex area, reaching out to a chartered accountant is recommended.
Low-Value Assets
Low-value assets, or those costing $1,000 or less, can be fully deducted in the year of purchase without requiring depreciation over time. This can be particularly useful for items like basic furnishings and small appliances.
Body Corporate Levies
If your rental property is part of a unit title development (like an apartment building), body corporate levies may be deductible. General maintenance and administration levies are usually deductible, while those raised for substantial improvements are not.
In cases where levies cover both general repairs and improvements, only the portion related to repairs is claimable. Keeping detailed records of these levies is crucial for accurate reporting.
What Expenses Can’t I Claim?
You can’t claim deductions for capital expenses, private expenses, or expenses that do not relate directly to your rental property.
What are capital expenses?
Capital expenses are the costs of buying a capital asset or increasing its value. For example, the cost of buying the property and making improvements.
What are private expenses?
Private expenses are the things you buy or pay for that are for your own benefit rather than to generate rental income.
Expenses you can’t deduct from your rental income in your tax return:
- The purchase price of the rental property
- Any principal portion of mortgage repayments
- Interest on any money you borrow for any purpose other than financing a rental property
- Costs related to any additions or improvements to the property
- Costs for repairing or replacing damaged property if the work adds to the property’s value
- Real estate agent fees associated with buying or selling the property
- Depreciation on the land or buildings of the rental property
- Your own time spent on repairs or maintenance
- Legal fees involved in selling the rental property (unless you’re in the business of providing residential rental accommodation).
Goods & Services Tax (GST
GST is not charged on residential rent so this means you don’t include rental income on your GST returns (if applicable).
Repairs or upgrades to a substandard investment property
You can’t claim expenses incurred to bring a rental property up to the required condition necessary before it can be rented. This could be substantial repairs to an existing roof or Healthy Homes compliance-related work for items that didn’t already exist at the property. For example: installing a brand new underfloor moisture barrier.
Initial Costs
Any initial costs associated with finding an appropriate rental property, including the cost of checking the condition of t a property before purchasing it e.g. a building report.
Other Exceptions
If the property isn’t rented for the full year; isn’t available to be rented out at any stage during the year; or is only available for rent for part of the year, then you can’t claim the full year’s ongoing costs such as rates, insurance and interest.
Getting Expert Advice on Claimable Expenses
Navigating the range of claimable expenses can be complex, particularly when deciding whether repairs qualify as improvements or understanding the fine details of interest deductibility. Working with a chartered accountant ensures you maximise your deductions while staying compliant with New Zealand’s tax regulations.
By claiming all eligible expenses, Auckland property investors can make the most of their rental investments in today’s changing financial landscape.
Want to know more? Get in touch with our team of expert property managers below. We’re experts at navigating Auckland’s rental market and would love to help.
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