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Changes to ring-fencing rental losses rules

Inland Revenue is reminding landlords they can no longer offset residential property deductions against their other income.

Often referred to as “ring-fencing rental losses”, deductions for residential properties are ring-fenced so they can only be used against income from that property.

From the 2019-20 income year new ring-fencing rules mean people cannot use rental losses to offset other income like salary and wages.

Under the rules, landlords can only claim deductions up to the amount of income they earn from rental properties for the year.

Landlords must carry forward deductions over that amount, but they can use these deductions to offset rental income in future income years.

The rules generally apply no matter whether the property is held in a partnership, trust or company.

All rental property owners who run their rental properties at a loss will be affected, including so-called ‘mum and dad’ type investors with one or two rental properties, as well as bigger players with a larger portfolio.

The rules don’t apply to someone’s main home, farmland, or property used mainly as a business premises etc.

If a taxpayer owns more than 1 residential rental property they can choose whether to apply the rules across their portfolio or on a property by property basis.

More info on the website soon www.ird.govt.nz The rules apply from 1 April 2019 and are for the 2019-20 and later income years.

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