Expenses Guide for Rental Property owners

Any income received from a residential rental property is liable for income tax and must be declared in your personal income tax return (IR3).

The financial year generally starts 1st of April and ends 31st March.

There are some expenses which are deductible and some non-deductible

The expenses you can deduct from your rental property income are:

• the cost of insuring your rental property
• the rates for the property
• payments to agents who collect rent, maintain your rental.
• fees paid to an accountant for managing accounts, preparing tax returns and advice.
• repair and maintenance costs
• fees for arranging a mortgage to finance the rental property.
• fees for drawing up a tenancy agreement.
• the cost of getting a valuation required to get a mortgage, but not insurance valuations.
• the costs of taking legal action to recover unpaid rent.
• the costs for evicting a tenant.
• travel expenses for travelling to inspect your property or to do repairs.
• legal fees involved in buying a rental property, if the expense is $10,000 or less.

Expenses you cannot deduct from your rental income are:

• capital expenses.
• the purchase price of a rental property
• costs of making any additions or improvements to the property
• cost of repairing or replacing damaged property, if the work increases property value.
• real estate agent fees charged as part of buying or selling the property.
• your time when you do repairs and maintenance work.
• legal fees involved with selling the rental property (unless you’re in the business of providing residential rental accommodation).

The difference between repairs and improvements can be complex and it is best to get tax advice.

Interest deductibility

Since 1 October 2021, the following rules apply for interest deductibility.

Interest cannot be claimed for residential property acquired on or after 27 March 2021 unless there is an exclusion. 

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

Remember: this is a guide and doesn’t constitute tax or legal advice. As with most things tax and legal it’s always best to get advice from a specialist before taking any action.

This article was kindly written by Abhi Jagwani of My Tax CA. She can be reached at www.mytaxca.co.nz or on 09 366 7799.