Good News, Landlords: 100% Interest Deductibility Returns
In a move welcomed by property investors and landlords across New Zealand, the government has officially restored 100% interest deductibility on residential investment properties.
This is a significant tax change, and effectively reverses a controversial policy that was introduced by the Labour-led government in 2021.
Here’s what you need to know about the change… and how to make the most of it.
FIRST, A RECAP: WHAT WAS THE OLD RULE?
Rental property interest deductibility is essentially a ‘tax break’ - it treats mortgage interest as an expense against rental revenue, and lets landlords deduct the amount they pay in mortgage interest from their rental income. This decreases their taxable income, thus reducing the tax the landlord owes.
Back in 2021, the previous government removed the ability for property investors to claim tax deductions on interest costs for residential mortgages. This meant landlords could no longer offset their interest expenses against rental income, effectively increasing their tax bill. The change applied to both new and existing properties, unless they met strict new build exemptions.
It wasn’t a popular move - especially in a rising interest rate environment - and it reduced both the attractiveness and affordability of property investment for many.
SO WHAT’S CHANGING NOW?
As of 1st April 2025, interest deductibility has now been fully reinstated for residential investment properties. A game-changer.
Property investors can now claim 100% of their mortgage interest expenses again - whether the mortgage is new or existing, and regardless of when the property was purchased.
(This April 2025 update marks the second and final stage of the phased reinstatement, which began with 80% deductibility from 1st April 2024, following legislation passed in March 2024.)
EXAMPLE: WHAT THIS LOOKS LIKE IN PRACTICE
Let’s say you have a residential rental property with $20,000 in annual mortgage interest costs.
During the 2023–24 year, you would not have been allowed to deduct any of that $20,000 as an expense from your taxable income.
In the 2024–25 year, 80% of your mortgage interest could have been ($16,000) deducted from your income.
And from this year (2025-26) onward? The full $20,000 mortgage interest is now deductible.
At a marginal tax rate of 33%, you’ll be saving $6,600 in tax just in this 25-26 financial year alone — a meaningful improvement to cash flow.
BUT: WATCH FOR RING-FENCING RULES
While 100% interest deductibility is returning, rental loss ring-fencing rules still apply.
This means you can't offset rental losses against your personal income (like salary or wages). Losses can only be carried forward and used against future rental profits.
AND: WATCH YOUR BALANCE DATE
If your financial year end is not 31st March (for example, you have a 30th June balance date), you’ll need to apportion the deductible interest for the transitional year.
For example:
• From 1 July 2024 to 31 March 2025, 80% is deductible.
• From 1 April to 30 June 2025, 100% is deductible.
This kind of detail is important when preparing your annual tax return - so it’s worth discussing early with your accountant.
WHY WAS THIS CHANGE MADE?
The policy shift aligns with the current National-led government’s broader objective to restore investor confidence in the property market, encourage private investment in housing and improve rental supply. It follows other landlord-friendly changes, such as:
Shortening the bright-line test to 2 years, and
Extending depreciation allowances on new builds (in some cases)
OUR ADVICE
As specialist mortgage advisors (and highly-qualified financial planners), here’s our take:
Talk to your accountant early: Especially if you’re refinancing or planning capital improvements.
Definitely revisit your mortgage structure: You might now benefit from interest-only periods, or fixed vs variable rate reviews.
Plan for tax efficiency: With deductibility restored, smart debt structuring becomes even more valuable!
LIKE SOME HELP?
Whether you’re reviewing your portfolio, considering a new investment property purchase, or just need help understanding how this change affects you and your current mortgage… we’re here to help!
Our blog is not intended to be taken as personal tax or financial advice
and is for informational purposes only.
Before acting on this information, contact WealthHealth mortgage brokers
to ensure it is suitable for your circumstances.