Is Mortgage Interest Tax Deductible in NZ?
On your own home, no. On a residential rental, yes: from 1 April 2025 landlords can again claim 100% of their interest. What decides it is what the borrowed money was used for.
The short version
| Borrowing used for | Interest deductible? |
|---|---|
| The home you live in | No. It's a private expense. |
| A residential rental property | Yes. 100% of interest from 1 April 2025. |
| A business or commercial property | Generally yes, as a business expense. |
| Part of your home used for flatmates, boarders or a home office | Sometimes, in part. Specific rules apply. |
We're mortgage advisers, not tax advisers. What follows is general information to help you structure lending sensibly. Inland Revenue's property interest rules are the authority, and your accountant should confirm how they apply to you.
What changed for landlords
From October 2021, interest deductions on most residential rentals were phased out. That has been reversed. Inland Revenue's guidance is that 80% of interest could be claimed from 1 April 2024, and 100% from 1 April 2025. So for the 2025-26 tax year onward, interest on money borrowed for a residential rental is fully deductible again.
Two related rules haven't gone away. Ring-fencing still applies: if your rental makes a loss, you generally can't offset that loss against your salary. It carries forward against future rental income. And the bright-line test still taxes gains on residential property sold within two years of purchase, with the main home excluded. See our bright-line guide.
It's the use of the money that counts
This trips people up. Deductibility follows what the borrowed funds were used for, not which property secures the loan.
- Borrow against your own home to buy a rental: the interest on that borrowing is deductible, because the money bought the rental.
- Borrow against a rental to renovate your own kitchen: not deductible, because the money was spent privately.
Which is why loans need to stay separate and traceable.
What this means for how you structure lending
- Keep rental borrowing in its own loan account. Never mix it with private borrowing. A mixed loan is an accounting headache and can cost you deductions.
- Pay down the non-deductible debt first. Many investors keep the rental loan interest-only and put spare cash onto their home loan. See interest-only loans.
- Be careful with revolving credit. One facility used for both rental and private spending muddies the trail. Use separate ones.
- Turning your home into a rental? The existing loan was used to buy what's now a rental, so its interest may become deductible. But if you borrow more against it to buy your next home, that new borrowing is private. People get this wrong often. Talk to your accountant before you move.
Keep records
Loan statements, settlement statements showing where the money went, and a note of what each loan was for. If Inland Revenue asks, the paper trail is your answer.
This article explains how New Zealand lenders generally assess these situations. It is general information, not personalised financial advice, and lender policy changes often — check your own position with a registered adviser. Official sources: Reserve Bank of New Zealand for lending policy and the OCR, and Sorted.org.nz for independent government-backed money guidance.
Mortgage interest and tax: common questions
Buying or restructuring a rental?
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