Changes to the interest limitation rules

Claiming interest as an expense for residential property in New Zealand is being phased back in.

What is changing

From 1 April 2024, you can claim 80% of the interest incurred for funds borrowed for residential property. This is regardless of when the property was acquired or when the loan was drawn down.

From 1 April 2025 interest deductibility will be fully restored, and you will be able to claim 100% of the interest incurred.

What is not changing

The following will remain unchanged until interest deductions are fully restored:

• property types the rules apply to
• how the rules work for different entities
• the land business, property development and new build land exemptions

Interest deductions that were previously disallowed between 1 October 2021 and 31 March 2024 will remain disallowed unless the property is sold and subject to tax.

When property is sold

The rules for disallowed interest deductions when a property is sold are remaining. This means, if the sale of a property is taxable under the bright-line test or 1 of the other land sale rules, the amount of the previously disallowed interest can be treated as if it were part of the cost of the property in the year you sell it.