Mortgage interest on your rental property just became 80% tax deductible for most landlords. As at 2026-04-21, this partial restoration of interest deductibility can save thousands of dollars in tax for property investors, but the calculations aren't straightforward.

The change applies to the 2025 tax year (1 April 2024 to 31 March 2025), with full 100% deductibility returning from 1 April 2025 (Income Tax Act 2007, sections GA 1 and general provisions on interest deductibility). The exact tax saving depends on your mortgage size, interest rate, and personal tax bracket.

What this article covers

This article explains how to calculate tax savings from 80% interest deductibility for residential rental properties owned by individuals or partnerships. We'll walk through worked examples and common calculation mistakes.

This article does not cover:

• Properties held in trusts, look-through companies (LTCs) or other structured entities
• Mixed-use properties (holiday homes, boarding house arrangements)
• Non-resident owners subject to different tax rules
• New build properties (which have always remained 100% deductible)
• Commercial or industrial rental properties

The 80% deductibility rule explained

From 1 April 2024 to 31 March 2025, you can deduct 80% of mortgage interest expenses against rental income on New Zealand residential properties. This applies regardless of when you bought the property or drew down the loan, provided the interest meets general deductibility rules.

The phase-in schedule works like this:

• 2023/24 tax year: 50% deductible
• 2024/25 tax year: 80% deductible
• 2025/26 tax year onward: 100% deductible

IRD confirms these rates in Interpretation Statement IR2024/027, which details the restoration timeline after interest deductions were restricted from 1 October 2021.

How much can you save?

Your tax saving equals your deductible interest multiplied by your marginal tax rate. For the 2025/26 tax year, New Zealand's personal income tax rates are:

Income Range	Tax Rate
$0 - $14,000	10.5%
$14,001 - $48,000	17.5%
$48,001 - $70,000	30%
$70,001 - $180,000	33%
Above $180,000	39%

Most rental property investors fall into the 30% or 33% brackets. This means every dollar of deductible interest saves you 30-33 cents in tax.

Worked examples

Example 1: High-value Auckland property

Property details:

• Mortgage: $800,000 at 6.85% interest
• Weekly rent: $600 ($31,200 annually)
• Owner's tax bracket: 33%

Calculation:

• Annual interest: $800,000 × 6.85% = $54,800
• Deductible interest (80%): $54,800 × 0.8 = $43,840
• Tax saving: $43,840 × 33% = $14,467

In this case, the rental creates a tax loss of $12,640 ($31,200 rent minus $43,840 deductible interest), which reduces the owner's overall tax bill.

Example 2: Mid-range provincial property

Property details:

• Mortgage: $500,000 at 6.5% interest
• Weekly rent: $450 ($23,400 annually)
• Owner's tax bracket: 30%

Calculation:

• Annual interest: $500,000 × 6.5% = $32,500
• Deductible interest (80%): $32,500 × 0.8 = $26,000
• Tax saving: $26,000 × 30% = $7,800

This property also generates a small tax loss of $2,600.

Example 3: Looking ahead to 100% deductibility (2026 onward)

Property details:

• Mortgage: $1,200,000 at 7% interest
• Weekly rent: $750 ($39,000 annually)
• Owner's tax bracket: 33%

Calculation for 2026 tax year:

• Annual interest: $1,200,000 × 7% = $84,000
• Deductible interest (100%): $84,000
• Tax saving: $84,000 × 33% = $27,720

The jump from 80% to 100% deductibility will add $5,544 in extra tax savings for this investor.

Common calculation mistakes

Claiming 100% instead of 80% For the 2025 tax year, you can only claim 80% of interest expenses. Claiming the full amount creates an overclaim that IRD will adjust during processing.

Forgetting the private use test Interest must be incurred for income-earning purposes. Any private use component (like occasional family stays) reduces your deductible amount proportionally.

Missing the new build exemption Properties defined as new builds (less than 2 years from consent to Code Compliance Certificate) remain 100% deductible throughout the phase-in period. Many owners miss this and underclaim deductions.

What about other rental expenses?

Interest deductibility gets the headlines, but don't forget other rental expenses that remain 100% deductible:

• Rates and insurance
• Property management fees
• Repairs and maintenance
• Depreciation on chattels (furniture, appliances)

These expenses stack with your interest deduction to further reduce taxable rental income.

Planning for 2026 and beyond

From 1 April 2025, full 100% interest deductibility returns. This will significantly improve rental property cash flows, especially for highly geared investors.

Consider timing any major property decisions around this change. The tax benefit of owning rental property will be substantially higher from the 2026 tax year onward.

Record keeping requirements

Keep detailed records of:

• Mortgage statements showing interest charged
• Evidence of what the loan funded (property purchase, improvements)
• Documentation of any private use
• Records of all other rental expenses

IRD may request these during processing or audit. Good records also help you claim all available deductions.

This information is general in nature and not intended as financial or tax advice. Tax rules change; the details above are current as at 2026-04-21. Consult a qualified accountant or tax advisor for advice specific to your situation.