Mortgage interest is often one of the largest expenses involved in owning a residential rental property.
From 1 April 2025, property investors can generally claim 100% of qualifying interest incurred on funds borrowed for a residential rental property, subject to the ordinary deductibility, private-use and residential rental deduction rules.
This does not mean every mortgage payment or every loan secured against a rental property qualifies. The use and traceability of the borrowed money remain important.
Angela Downie provides mortgage advice at Platinum Mortgages. This article contains general information only and is not tax advice. Confirm your individual tax treatment with a qualified accountant or tax adviser.
From 1 April 2025, investors can generally claim 100% of qualifying interest on money borrowed for a residential rental property. The previous limitation was 80% for the year from 1 April 2024 to 31 March 2025.
Only qualifying interest may be deductible. Principal repayments are not rental-property expenses, and private borrowing does not become deductible merely because a rental property provides the security.
For the current official position, see Inland Revenue’s residential property interest rules.
| Payment component | General treatment |
|---|---|
| Interest on qualifying rental borrowing | May be deductible |
| Principal reducing the loan balance | Not deductible |
| Interest connected with private borrowing | Generally not deductible |
| Fees or other finance costs | Depends on the circumstances |
The tax treatment generally follows the use of the borrowed funds rather than only the property used as security.
| Borrowing situation | Indicative treatment |
|---|---|
| Money borrowed to purchase a residential rental property | Interest may be deductible |
| Equity released from a home and used toward a rental purchase | Interest may be deductible where the borrowed funds are used for the rental purpose and can be clearly traced. |
| Loan secured against a rental property but used privately | Interest is generally private |
| One loan used partly for investment and partly privately | Interest may need to be apportioned |
| Rental debt refinanced without changing purpose | The income-earning connection may continue, subject to the facts |
The home may provide the security while the borrowed funds are used for the investment purchase. The use and movement of the funds remain central.
For the lending calculation and security options, read using equity to buy an investment property in New Zealand.
Clearly identified personal and investment loan accounts can make it easier to show the purpose of each loan, trace interest, provide records to an accountant and avoid mixed private and rental spending.
Separate accounts do not create deductibility by themselves. They support clearer records.
| Loan account | Identified purpose |
|---|---|
| Existing home loan | Private home borrowing |
| Separate borrowing for the investment purchase | Investment-property contribution and purchase costs |
| Investment-property mortgage | Remaining rental-property purchase funds |
Using a revolving-credit, overdraft or flexible loan for both rental and private expenditure can make tracing and apportionment more difficult.
Deposits, redraws and repeated private transactions can make it harder to identify which part of the borrowing relates to the rental property. Keep detailed records and obtain tax advice before mixing purposes.
Angela Downie, Financial Adviser at Platinum Mortgages, explains why investors should not rely on potential tax benefits to make an investment property affordable:
“One of the biggest misconceptions I see is investors relying on future tax savings to make an investment property affordable.
From a mortgage-advice perspective, I encourage clients to make sure the property stacks up on its own cashflow rather than assuming a potential tax benefit will make the numbers work.
Lenders also do not simply compare rental income with the mortgage repayment. They generally allow for property expenses such as rates, insurance and vacancies, and they may not use all of the expected rental income when assessing affordability.
I also recommend that clients speak with their accountant before purchasing so the ownership structure and individual tax implications can be reviewed by the appropriate adviser.
The practical lesson is that the investment should be financially sustainable on its own merits, with personalised tax advice obtained separately from an accountant.”
We identify what each portion will fund, including the contribution, purchase, improvements, refinancing or private use.
Where practical, we help keep personal and investment borrowing clearly identified for different purposes.
We clarify how the borrowed funds are intended to move from the lending account to the investment purpose so the transaction can be clearly documented.
We consider suitable lending and security options while keeping the borrowing purpose clear. Tax treatment remains for the borrower’s accountant or tax adviser to confirm.
Where appropriate, the proposed borrowing purpose and account structure can be shared with the borrower’s accountant before settlement so the tax implications can be reviewed.
Tax advice is particularly important for mixed-purpose loans, trusts, companies, refinancing and private redraws.
The lending can then be completed with the purpose of each account clearly documented and appropriate records retained.
Platinum Mortgages can help arrange the mortgage accounts and security structure, while your accountant or tax adviser confirms the individual tax treatment.
DISCUSS MY INVESTMENT LENDING STRUCTURE
Refinancing does not necessarily remove the original income-earning connection, but the position may become more complex where debt increases, private funds are added, loans are combined, ownership changes or mixed-purpose facilities are introduced.
Ask your accountant to review the proposed refinance before the new structure is completed.
Potentially. Interest on borrowing used for an income-earning rental property may be deductible where the general deductibility rules are met and the borrowing is not private. The tax treatment of the renovation cost itself is a separate question: repairs and maintenance may be deductible, while additions and capital improvements generally are not.
| Work | Possible consideration |
|---|---|
| Restoring an existing feature | May be repairs and maintenance |
| Adding a new room | Usually capital improvement |
| Replacing part of a damaged feature | Depends on nature and extent |
| Substantial improvement | May be capital expenditure |
| Work on a private part of the property | Private portion may not qualify |
Retain invoices and fund-flow records and ask a tax professional to confirm the treatment.
Yes. Residential rental deductions are generally limited to residential property income. Excess deductions are normally carried forward rather than offset against salary or wages.
For the official explanation, see Inland Revenue’s residential rental property deductions.
| Rule | What it determines |
|---|---|
| Interest deductibility | Whether qualifying interest forms part of the rental deductions |
| Ring-fencing | When and against which income residential rental deductions can be used |
Inland Revenue requires residential rental-property records to be kept for at least seven years. Records should clearly support the rental income, expenses, borrowing and transactions being reported.
Principal repayments are not rental-property expenses.
The use of the borrowed money remains important.
Mixed facilities can require tracing and apportionment.
Combining or increasing loans can change the clarity and purpose of different portions.
Excess residential deductions generally cannot reduce salary or wages.
Ownership, entities, short-stay and mixed-use situations require individual advice.
Yes, particularly where the purchase involves equity, refinancing, mixed debt, trusts, companies or multiple securities.
The interest-rate structure does not by itself determine deductibility. Purpose and use remain central.
The redraw may create mixed-purpose borrowing and a private portion that requires tracing.
Potentially, depending on whether the property remains genuinely available for rent and the surrounding circumstances. Confirm with your accountant.
No. Platinum Mortgages arranges lending. Your accountant or tax adviser determines the amount claimable.
New-build exemptions were important while the residential interest-limitation rules applied. From 1 April 2025, investors can generally claim 100% of qualifying interest for residential rental property regardless of when the property was purchased, subject to the ordinary deductibility and private-use rules. Confirm the treatment of your property with your accountant or tax adviser.
Before settlement, establish the purpose of each loan, whether accounts should be separated, how funds will move, what records will be retained and whether the accountant has reviewed the proposal.
The objective is lending that works practically, fits lender requirements and can be clearly understood by the borrower and professional advisers.
Platinum Mortgages can review the deposit funding, equity, lender pathway, loan accounts, security and settlement structure, while working alongside the borrower’s accountant where tax advice is required.
DISCUSS MY INVESTMENT LENDING STRUCTURE
Platinum Mortgages New Zealand Limited (FSP752271) is a Financial Advice Provider licensed and regulated by the Financial Markets Authority. Angela Downie (FSP742251) is a Financial Adviser at Platinum Mortgages who provides mortgage advice to New Zealand borrowers under that licence and has worked in the financial industry since 2006.
For investment-property lending where interest deductibility may be relevant, Angela helps clients keep borrowing purposes, loan accounts and fund movements clear, while the borrower’s accountant or tax adviser confirms the individual tax treatment.
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