From 1 October 2021 to 31 March 2025, the interest limitation rules (the rules) restrict the ability to claim interest, unless an exclusion or exemption applies. The rules apply only to property in New Zealand.
For interest to be deductible, it must not be private in nature and the general deductibility rules must be met.
Property types the rules apply to
The rules apply to any property with a dwelling on it (like a house or apartment) and bare land that can be used for residential property. It does not matter if you rent the property out long or short-term, use it for short-stay accommodation some or all of the time, or leave it vacant.
Read about the interest limitation rules and short-stay accommodation.
IS 23/04 – The interest limitation rules and short-stay accommodation
Timeframes for the interest limitation rules
From 1 April 2025 you can claim 100% of the interest you incur.
1 April 2024 to 31 March 2025
You can claim 80% of the interest you incurred. It does not matter when you got the property or drew down the loan.
Past years
For your 2022, 2023 and 2024 tax returns, when you borrowed the funds affects if you can claim interest deductions.
Use the tool at the bottom of this page to find out if the rules apply to your property.
Property types excluded from the rules
Main homes are generally not affected. You cannot claim interest for private use.
If the interest relates to income you earn in your main home, for example, you have flatmates or boarders, you can claim some interest against this income.
Other properties excluded from the rules are listed in Schedule 15 of the Income Tax Act 2007.
Entities excluded from the rules
The rules do not apply to most companies where their core business does not involve residential land. These are companies where residential property (including new builds) makes up less than half their total assets.
Close companies must apply the rules, even if their core business does not involve residential land.
Māori authorities or companies wholly owned by a Māori authority are exceptions to the close company rules.
Kāinga Ora and its subsidiaries are excluded because they provide emergency, transitional and social housing.
Exemptions from the rules
If the rules apply to your property, you may still be able to claim interest if you qualify for one of the following exemptions:
- Land business
- Property development
- New build land.
To claim interest, it must not be private in nature and the general deductibility rules must be met.
Renting out your holiday home
The rules apply to interest relating to residential property you rent out some of the time and use privately some of the time. This is the case with many holiday homes.
Tracing loans for both residential property and non-residential property
If you drew down a loan before 27 March 2021 and used that loan for residential property and non-residential property, you need to trace the loan and work out how much of it was for residential property.p;
The interest you incurred on the part of the loan used for residential property comes under the interest limitation rules. The interest limitation rules do not apply to money you borrow for non-residential property purposes.
Untraceable loans
If you cannot reasonably work out how much of the loan was for the residential property, you need to use the transitional rule that applied up until 31 March 2025.
Using the transitional rule
You can treat the loan as if you used it to acquire your business property first (based on the market value of that business property) and then apply the balance to the residential property.
If the balance of an untraceable loan on 26 March 2021:
- was less than the value of other income generating property you held — the interest limitation rules do not apply
- was more than the value of other income generating property you held, treat the excess as if you used it to acquire the residential property — the interest limitation rules apply.
When you make a repayment reducing the balance of a single loan used for both purposes, generally the repayments are treated as first going to the residential property loan until the balance reaches zero.
The transitional rule does not apply if the non-residential property you held on 26 March 2021 is sold, and the sale proceeds used to repay the loan.
Find out if the rules apply to you
When you sell property
If the sale of your property is taxable under the bright-line test or 1 of the other land sale rules, you may be able to claim the amount of interest previously disallowed by the interest limitation rules.