Do you own a rental property or are thinking about investing in one?
In this blog we’ll answer the mostly commonly asked questions about rental properties and how it works from a tax perspective. If you’re unsure of what you can and can’t claim – keep reading to learn more.
Whether you are a sole trader or have multiple rental properties owned by a company, this blog is for you. This knowledge will help you to maximise your return on investment and keep IRD happy.
What can I claim as a deduction on my rental property income?
Landlords can claim deductions for many expenses for their rental property while it is currently rented or available for tenants.
Here is a list of things you can claim when related to your rental:
Property management fees and commission
Car expenses and mileage
Travel expenses (i.e. travelling to inspect the property or make repairs)
Small purchases under $1000
Repairs and maintenance (i.e. replace broken window, fix hole in Gib, repainting the house)
Books, property magazines, subscriptions or association memberships
Legal fees for buying or selling a residential rental property (capped at $10,000)
Legal fees for arranging the mortgage or finance
Insurance (mortgage, landlord and house)
Rates
Accounting and bookkeeping fees
Interest paid on the mortgage or finance
Cost of evicting a tenant
The good news is that list covers a lot of expenses.
What cannot be claimed?
The following expenses cannot be deducted from your rental income:
Cost of making improvements or additions to the property (i.e. adding an extra room, installing a new form of heating or double glazing).
Repairs and maintenance that increase property value (i.e. improvements)
Chattels attached to the property (i.e. kitchens, wardrobes, fitted furniture)
The purchase price of a rental property
The principle portion of mortgage repayments
Real estate fees from buying or selling
Depreciation on the rentals land or buildings
Your time to do repairs and maintenance work
What happens if my rental is not occupied for a period of time?
If your property is not rented for a full year or only available for part of a year then you can’t claim a full year of expenses.
How do I record expenses?
You need to keep records of income and expenses for 7 years.
If all the paper filing makes you cringe, look at online tools such as Hubdoc which connect with Xero and enable you to scan receipts so you don’t need to keep the printed copies. For car expenses and mileage, IRD have a free downloadable logbook template – click here IRD - Logbook
How will the change of government affect me as a landlord?
This is a question that has been top of mind for many people over the last few months. The National party has stated that they will restore interest deductibility for rental properties and restore the Brightline test to two years. We’ll all be eagerly watching to see what happens in early 2024.
Getting expert advice
If in doubt, ask! It’s better to get clarification. As an accountant we help landlords to file their rental and investment property tax returns. If you want to learn more, book a free discovery call with Samantha - click here to contact us today.
*this information was accurate at the time of publishing November 2023.