You can claim residential rental deductions if you have a rental property, a flatmate in your home or earn income from a rental service such as Airbnb. The individual amounts you can claim might not seem like much to begin with but they add up quickly and can substantially reduce your tax bill over the year. Putting in place a simple system for claiming rental property expenses can make the process feel effortless.
To make things simple we’ve put together this practical guide for people with residential rental properties – based on the offical New Zealand tax guides (used by accountants) and the latest information from IRD – to help you claim rental property tax deductions with confidence.
This guide is not intended for companies who are in the business of providing residential rental accommodation.
Jump to a section of this guide:
- Which rental property tax deductions can you claim?
- How much of each expense can you claim?
- Properties owned by more than one person
- How to include rental expenses in your tax return
Which Rental Property Tax Deductions Can You Claim?
Below are the common residential rental deductions you can claim. For a complete list of all self-employed expenses, check out our personal tax deductible expenses article.
Rental Rates – Council rates on your rental property.
Rental Insurance – Insurance on the rental property or the rental’s mortgage.
Rental Repairs & Maintenance – Commercial labour or material costs to repair and maintain the rental. You cannot claim for your time if you are doing the work yourself. And you cannot claim alterations that add value to the property, such as adding an extension.
Rental Mortgage Interest – Mortgage interest only, and not the principal portion of your repayments. Mortgage interest always does not include GST, even for a short-term rentals. There are specific rules around how much interest you can claim, read our guide to deducting interest on rental property for more details.
Rental Utilities – Utilities provided to your tenants such as water, power or internet.
Rental Advertising – Advertising for new tenants.
Rental Cleaning – Commercial cleaning fees or cleaning products for the rental. You cannot claim for your time if you are doing the cleaning yourself.
Property Management – Fees or commission paid to a property manager. If you use an agent to collect the rent and/or maintain the property, the cost of the agent’s fees can be deducted. Any commission paid to an agent to find tenants for the property is also deductible.
Rental Legal Fees – Legal fees related to buying the rental, tenancy agreements or disputes. Your total legal fees cannot be more than $10,000 for the year. You cannot claim legal fees for selling the property.
Travel expenses – If you use your own vehicle in the course of renting out your property, for example, travelling to inspect a property or to do some repairs, you can claim some vehicle running costs as an expense. Also, if the property is somewhere other than your hometown and you travel to inspect or do repairs you can claim travel expenses such as air fares, taxis, rental car hire or overnight accommodation.
Body corporate levies – General levies used to pay for maintenance or admin (such as painting or insurance). You cannot claim levies used to pay for capital improvements.
How Much of an Expense Can You Claim?
How much of an expense you can claim depends how long you rent the property for (long-term or short-stay) and how much of the property is rented – e.g. a room in the home or the entire property.
You cannot claim more rental deductions for a tax year than your total rental income. This is known as the ring-fencing rules.
Any rent paid to you in advance is taxable in the year you receive it in. So if your tenant paid rent on 30 March 2024 for the next two weeks, that rent should be included in your 2023-2024 tax return.
Long-term Rental Properties
A long-term rental is a property that you rent out from more than 4 consecutive weeks. Such as having permanent tenants or a long-term flatmate in your home.
The main difference between long-term and short-stay rentals is that rental income and expenses relating to long-term rentals are exempt from GST. You cannot claim GST on expenses from a residential property and you cannot include GST in the rent you charge. When claiming expenses you should use the cost of the expense including the GST.
Long-term: Entire Property
When you rent out an entire property to long-term tenants, the expenses relating to that property are usually full deductible.
You can claim expenses for the property when it’s either rented out or available for rent. However, if the property is not rented or available for part of the year, you cannot claim expenses for that time, such as rates, insurance, and interest. If the property is temporarily unavailable due to maintenance or redecorating, you can still deduct the ongoing costs for that period.
Long-term: A Room in Your Home
When you live in a property and rent out part of the property, such as with a flatmate, you can only claim a portion of the shared expenses. The portion you can claim is based on the percentage of the property that you rent out, and how long it was rented out for.
Shared rental expenses can include; utility bills, internet bills, repairs and maintenance, insurance, mortgage interest and rates.
You can still claim the full amount of expenses that relate only to earning rental income, such as advertising and legal fees.
- Determine the total square metre size of your home. A quick way to do this is enter your address into a property website such as propertyvalue.co.nz or homes.co.nz and retrieve the floor area (not the land area) of the property. For this example, let’s assume your home is 100 square metres.
- Work out the area of the home used only by your tenants. E.g. your tenant uses 25 m2 of your 100 m2 house.
- Divide the area your tenant uses by the area of your home. E.g. 25 ÷ 100 = 0.25 = 25%. This represents the percentage of your home used only by your tenant.
- Next, work out the shared common area of the home. This is the area of the home that are used by both the tenants and you. Such as shared lounges and bathrooms. For example 30 m2 of the 100 m2 house are common areas.
- Divide the shared area of your home by the total area of your home and then halve it. E.g. 30 ÷ 100 = 0.3 = 30%. 30% ÷ 2 = 15%. This represents the percentage of your expenses you can claim relating to shared areas.
- Add together the percentage of the home used only for tenants and the shared area percentage. E.g. 25% + 15% = 40%. This is the total percentage of your shared expenses you can claim.
- Multiply your total shared expenses by the percentage of shared expenses you can claim. E.g. $5,000 of share expenses × 40% = $2,000. This is the shared rental expense total you can claim.
- Next, add your fully deductible expenses to your total shared expenses. E.g. $1,500 fully deductible expenses + $2,000 shared rental expenses = $3,500. This is your total rental expenses.
If your property wasn’t rented or available for rent for the entire year, also apply this calculation:
- Add up the days your property was rented or available for rental and divide this by the days in the year. E.g. 300 rented days divided by 365. Make the result a percentage. In this case the property was rented 82% of the year.
- Multiply your shared rental expenses by the percentage of the year it was rented. E.g. $2,000 shared rental expenses × 82% = $1,640.
- Next, add your fully deductible expenses to your total shared expenses. E.g. $1,500 fully deductible expenses + $1,640 shared rental expenses = $3,140. This is your total allowable rental expenses you can include in your tax return.
Or use our rental property tax deductions calculator.
Short-stay Rentals (Airbnb, Bookabach)
Calculating expenses for short-stay rentals, such as from an AirBnb or Bookabach, is a similar process to long-term rentals. However, the key difference is that if your annual rental income is more than $60,000, you must register for GST and file GST returns.
If you’re GST registered you need to remove GST from your expenses before calculating the claimable amount of your rental expenses. The GST on your rental expenses should then be claimed in your GST return instead of your income tax return.
From 1 April 2024, Airbnb and similar online marketplaces must automatically collect and pay GST on listings. Regardless of if you are GST registered or not. For more information on short-stay rentals, read our Airbnb taxes guide.
Short-stay Standard-cost Method
The standard-cost method is an alternative way of claiming short-stay rental expenses. If you use the standard-cost method, you cannot claim any other rental expenses.
The short-stay standard-cost rates for the 2023-24 income year are $61 per night for homeowners and $55 when you’re not the homeowner. All the rent you receive up to the level of the standard cost rate is exempt income. This means you do not need to include it in your tax return. You only pay income tax on the rental income you receive over the standard-cost rate.
Example: If you rent out a room in your home for 60 nights in the year and charge $75 per night. The total gross income for the year is $4,500. The short-stay standard costs as the homeowner are $61 per night.
The standard costs: $61 x 60 nights = $3,660.
The income you need to include in your tax return: $4,500 (total gross income) minus $3,660 (standard costs) = $840.
You can only use the short-stay standard-cost method if you meet the following conditions:
- you’re an individual and not a company
- the property is your main home
- you only rent out your home or rooms for 100 nights or less in the year. Each room counts as 1 night, so if you rent out 2 rooms for 1 night that’s 2 nights.
- you’re not GST registered
- if the property is held in a trust, you paid all of the costs for the year for the property
- neither you or anyone else claims expenses for the property
Properties Owned by More Than One Person
If you own the rental property in partnership with one or more people, the partnership needs its own IRD number. The partnership only needs to keep one set of accounts and file an IR7 income tax return each year. Each partner’s individual tax return (IR3) must include their share of the rental profit.
If you’re a couple, e.g. married, civil union or de facto you don’t need a partnership IRD number or IR7 return. Each person just needs to include an IR3R Rental Income form as part of their individual tax return (IR3), along with their share of the rental profit.
How to Include Rental Expenses in Your Tax Return
Now we get to the part of actually claiming rental deductions in your tax returns. If you’re registered for GST you will need to file GST returns throughout the year and an Income tax return (IR3), along with a IR3R Rental Income form, at the end of the year. The following instructions relate to online returns which can be accessed through your myIR account.
GST return
Add up the claimable GST portion of your rental expenses for the return period. Combine this amount with any GST you’ve paid on other expenses during the same period. Add the total to the ‘Total GST paid’ box in your online return.
Income tax return (IR3)
Enter your rental expenses in the ‘Residential rental deductions’ box. Then enter the ‘Residential rental deductions claimed this year’. The deductions claimed this year will likely be the same as your ‘residential rental deductions’, unless your deductions are more than your rental income. You cannot claim more expenses than your rental property income, this is known as the ring-fencing rules.
IR3R Rental Income Form
The IR3R Rental Income form is part of your income tax return and is required for statistical purposes. The figures you enter in the IR3R will not effect how much tax you pay. Enter all your rental expenses for the year into the relevant boxes.
Record Keeping
Like you do for any other business expenses you are claiming, you need to keep invoices and other records for your rental expenses.
Records of expenses should include:
- tax invoices for purchases of more than $200 if you want to claim these in your GST return.
- evidence of payment, for example invoices, cash sale dockets or till receipts.
- bank statements for your business related accounts.
For expenses under $200 simply having a bank statement that shows the purchase is enough.
You need to keep these records for at least 7 years. Records must be in English or Māori.
Claiming Rental Expenses with Solo
Claiming residential rental deductions in Solo is simple. Just select a category for your transactions and all the tax rules and math are automatically done for you. Solo shows you how much income tax, GST and ACC you owe at any moment throughout the year and gives you all the information you need to file your tax returns.
Start your free trial today.
Comments are closed.