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From 1 October 2021, interest cannot be claimed for residential property acquired on or after 27 March 2021. 

For properties acquired before 27 March 2021, the ability to deduct interest is being phased out between 1 October 2021 and 31 March 2025. 

Interest deductions for any new loans drawn down on or after 27 March 2021 won't be allowed from 1 October 2021 onwards.

If your rental property is financed by a loan in foreign currency, any interest is non-deductible from 1 October 2021 unless it is refinanced with a New Zealand dollar loan.

How interest deductions are being phased for properties acquired before 27 March 2021

Date interest incurred Percentage of the interest that can be claimed
1 April 2020 to 31 March 2021  100%
1 April 2021 to 30 September 2021  100%
1 October 2021 to 31 March 2022  75%
1 April 2022 to 31 March 2023  75%
1 April 2023 to 31 March 2024  50%
1 April 2024 to 31 March 2025  25%
On or after 1 April 2025  0%

Some properties are excluded from these rules and some exemptions apply.

Watch this YouTube video on Interest limitation rules for residential rental property owners.

Changes to property tax 2022 video

Acquired date for tax purposes

For tax purposes, a property is acquired on the date a binding sale and purchase agreement is entered into (even if some conditions still need to be met).

A property purchased on or after 27 March 2021 can qualify for phased-out interest deductions only if it was purchased as a result of an offer made on or before 23 March 2021, and that offer was not able to be revoked or withdrawn before 27 March 2021 (for example, by tender).

QB 17/02 has full information on when a property is acquired. QB 17/02 - Income tax - date of acquisition of land, and start date for 2-year bright-line test.

Exemptions from interest limitation rules

If the interest limitation rules apply to your property, you may still be able to claim interest if you qualify for one of the following exemptions:

  • Land business - land held as part of a developing, subdividing, or land-dealing business, or a business of erecting buildings on land.
  • New build land - a self-contained residence that receives a Code Compliance Certificate (CCC) issued under the Building Act 2004 confirming the residence was added to the land on or after 27 March 2020.
  • Property development - land that you develop, subdivide, or build on to create a new build.

For interest to be deductible, it must not be private in nature and the general deductibility rule must be met. 

Exemptions for property development and new builds

Property types the rules apply to

The interest limitation rules apply to residential property in New Zealand.

Any property with a dwelling on it (such as a house or apartment) is subject to these rules, as is bare land that could be used for residential property. 

It does not matter whether the property is rented out long or short-term, used for short-stay accommodation some or all of the time, or left vacant.

Main homes are generally not affected by these changes as you can’t claim interest deductions for private use. 

Overseas properties are not subject to the rules.

Property types to be excluded from the changes

The following types of residential property are excluded from the rules:

  • Main home – the interest limitation does not apply to interest related to any income-earning use of an owner-occupier’s main home, such as flatmates, boarders, bed and breakfast where the owner lives on the property.
  • Properties used as business premises (except for an accommodation business), like offices and shops. This includes residential properties to the extent they are used as business premises (for example, a house converted into a doctor’s surgery).
  • Farmland.
  • Certain Māori land, papakāinga and kaumātua housing, and land transferred as part of a settlement under te Tiriti o Waitangi/Treaty of Waitangi.
  • Emergency, transitional, social, and council housing.
  • Commercial accommodation such as hotels, motels, and hostels (but not short-stay accommodation provided in a residential dwelling).
  • Boarding establishment.
  • Care facilities: hospitals, nursing homes, hospices, and convalescent homes.
  • Retirement villages and rest homes.
  • Employee accommodation.
  • Student accommodation.

Read more information on excluded properties.

How properties are affected by the interest limitation rules

Property rented out and also used privately

The interest limitation rules apply to interest relating to residential property that is rented out some of the time and used privately some of the time. This is the case with many holiday homes. Interest expenses for such properties are non-deductible from 1 October 2021 unless the interest qualifies for the phasing out approach.

The interest limitation rules do not apply if the interest relates to income you earn in your main home, for example, from a flatting or boarding situation. You can deduct some interest against that income.

Exclusions for certain entities

The interest limitation rules do not apply to most companies where their core business does not involve residential land. These are companies where residential property (including new builds) makes up less than half their total assets.

Companies where 5 or fewer individuals or trustees own 50% or more of the company (referred to as close companies) will have to apply the rules even if their core business does not involve residential land.

There are exceptions for close companies that are Māori authorities or wholly owned by a Māori authority.

Kāinga Ora and its wholly-owned subsidiaries are excluded because they provide emergency, transitional and social housing.

How the rules work for different entities

Completing your income tax return

When completing your income tax return you will need to consider how the interest limitation rules apply to your property and calculate the total interest on residential property and the amount of interest that can be claimed. 

Total interest on residential property is the total interest incurred on your borrowings on all your residential properties for the year.

We also encourage you to keep a record of the interest incurred for each of your rental properties because you may be able to claim this amount when the property is sold if the sale is taxable under the bright-line property rule.

The bright-line property rule

Interest expense claimed is the total interest you can claim on your borrowings on all your residential properties under the interest limitations rules. If you claim interest, you will also be asked to provide the reason(s) why you are claiming that interest.


If your property will be affected by the interest limitation rule use these calculators to help work out your interest deduction.

The property interest phasing calculator will allow you to work out how much interest is deductible if you purchased a residential property before 27 March 2021 and the interest is subject to phasing.

Property interest calculator

The new build interest apportionment calculator will allow you to work out how much interest is deductible if your property has both a new build and non-new build and you are required to apportion your interest deduction.

Interest apportionment calculator

Property interest limitation rules

Work out if you are exempt from the interest limitation rules and can claim interest as deduction against the income you earn from your property.

If your situation isn't covered, talk to a tax professional.
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Last updated: 16 Feb 2022
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