Mortgage Interest Deductions Reinstated:
If you own a rental property, and you obtained lending to purchase the property, interest deductibility means that the interest you pay on that lending can be deducted from your rental income. The result of this is that you would end up paying less or even no tax on your rental income.
Under the previous Labour government there were plans to remove this ability for property investors to offset those interest expenses against rental income but the pendulum has now swung the other way with the National, ACT, NZ First coalition government agreeing to reinstate interest deductibility. A rental property owner can claim 80% of the interest incurred from 1 April 2024, and 100% from 1 April 2025.
However, losses are ringfenced against property investment rental income, so investors can't claim the loss against their other income, as they were able to in the past.
There are varying views on how this will affect the property market. Some view that the increase in rental rates over the past few years is partly due to the removal of interest rate deductibility with Landlords passing costs on to their tenants and that the reinstatement of interest deductibility could help prevent further increases along with encouraging more competition. The more attractive it is for people to own a rental property the larger the selection of properties available for tenants to choose from. While others disagree, stating that these changes don't guarantee any savings or improvements for tenants and that rents will continue to rise only slower than they otherwise would have.
Brightline test shortened to 2 years:
In addition, further changes were announced for the bright-line test proposing to reduce the current 10 years for properties acquired since 27 March 2021 (or 5 years for new builds or properties acquired between 29 March 2018 to 26 March 2021) back down to a two-year rule from 1 July 2024, effectively restoring the rules that were in place when National introduced the original bright-line test in 2015.
If you sell a property on or about 1 July 2024 the bright-line property rule will only apply if the property is sold within 2 years of acquiring it.
If you sell a property before 1 July 2024 the previous bright-line periods still apply, either 5 or 10 years depending on when you purchased.
There are exclusions to the bright-line property rule e.g. the main home exclusion and when selling your property. We as your lawyers will advise you on whether any exclusions apply in your particular circumstances.
Please contact us if you are interested in purchasing a rental property or already own a rental property and would like advice on what the recent changes could mean for you.
Written by Mina Kiryakos (Senior Solicitor) m.kiryakos@holmdenhorrocks.co
If you own a rental property, and you obtained lending to purchase the property, interest deductibility means that the interest you pay on that lending can be deducted from your rental income. The result of this is that you would end up paying less or even no tax on your rental income.
Under the previous Labour government there were plans to remove this ability for property investors to offset those interest expenses against rental income but the pendulum has now swung the other way with the National, ACT, NZ First coalition government agreeing to reinstate interest deductibility. A rental property owner can claim 80% of the interest incurred from 1 April 2024, and 100% from 1 April 2025.
However, losses are ringfenced against property investment rental income, so investors can't claim the loss against their other income, as they were able to in the past.
There are varying views on how this will affect the property market. Some view that the increase in rental rates over the past few years is partly due to the removal of interest rate deductibility with Landlords passing costs on to their tenants and that the reinstatement of interest deductibility could help prevent further increases along with encouraging more competition. The more attractive it is for people to own a rental property the larger the selection of properties available for tenants to choose from. While others disagree, stating that these changes don't guarantee any savings or improvements for tenants and that rents will continue to rise only slower than they otherwise would have.
Brightline test shortened to 2 years:
In addition, further changes were announced for the bright-line test proposing to reduce the current 10 years for properties acquired since 27 March 2021 (or 5 years for new builds or properties acquired between 29 March 2018 to 26 March 2021) back down to a two-year rule from 1 July 2024, effectively restoring the rules that were in place when National introduced the original bright-line test in 2015.
If you sell a property on or about 1 July 2024 the bright-line property rule will only apply if the property is sold within 2 years of acquiring it.
If you sell a property before 1 July 2024 the previous bright-line periods still apply, either 5 or 10 years depending on when you purchased.
There are exclusions to the bright-line property rule e.g. the main home exclusion and when selling your property. We as your lawyers will advise you on whether any exclusions apply in your particular circumstances.
Please contact us if you are interested in purchasing a rental property or already own a rental property and would like advice on what the recent changes could mean for you.
Written by Mina Kiryakos (Senior Solicitor) m.kiryakos@holmdenhorrocks.co