Have you been feeling the effects of the recent property tax changes? Two of the latest property tax changes are already affecting residential property investors – these are the bright-line test extension to 10 years for existing builds and the decrease of tax deductions for interest against residential income in some circumstances.

If you are a residential property investor or are looking into building your investment portfolio, it may be the best time to review how you will be taxed on your residential rental profits. Questions to ask are: what tax deductions are available for costs incurred and will a final disposal result in any tax payable? It also always a good idea to look into how best to structure your property investments.

Tax Deductions

You need to consider several factors to determine the deductible interest related to borrowings for a residential property. Is the property subject to the new interest limitation rules and do any exemptions apply to the person or entity that holds the residential property?

When will the interest limitation rules apply? Determine when the residential property was acquired to determine if the interest is fully non-deductible from 1 October 2021 or if it will be phased out from 1 October 2021 to 31 March 2025.

What interest do these rules apply to? Know what borrowings relate to Disallowed Residential Property and whether any apportionment calculations are required. Find out whether there are any new borrowings and if any rollover relief is available.

Know your record-keeping systems and make sure you keep track of the numbers you’ll put through in your tax returns. IRD has a new section for the disclosure of interest expenses on residential properties.

Other holding costs such as professional fees, insurance, repairs and maintenance, and rates may be tax-deductible subject to normal deductibility requirements. Make sure you comply with the Healthy Homes Standards.

Congrats if you’ve made it this far! Hopefully, we didn’t make you dizzy. If you have any questions on the above, don’t hesitate to holler and we can chat about it! Your Outside go-to will be happy to answer all your queries. Stay tuned as we’ll cover other tax considerations for residential land owners on our next blog.

Speak soon,

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