In this article:

  • Rental profit or loss is your total rental income minus the deductible expenses you incurred to earn it.
  • Mortgage interest on a residential investment property is fully deductible again from 1 April 2025, making it the biggest expense for most landlords.
  • Principal repayments, capital improvements and private use costs cannot be claimed.
  • Residential rental losses are ring-fenced, so they carry forward to offset future rental profits rather than your salary or wages.
  • Good records and professional advice help you claim everything you are entitled to and nothing you are not.

Owning a rental property can be a solid way to build long-term wealth, but come tax time many investors are left wondering whether the property actually made money. Working out your rental profit or loss is not as complicated as it seems once you understand what counts as income, what you can deduct, and how the rules around mortgage interest have changed in recent years.

Start With Your Rental Income

Your rental income is more than just the weekly rent paid by your tenants. For tax purposes, it generally includes:

  • Rent received from tenants over the income year (1 April to 31 March)
  • Any portion of a bond you keep to cover unpaid rent or damage
  • Insurance payouts for lost rent
  • Fees charged to tenants, such as for letting or late payments
  • Payments for extras like furniture hire or parking

Add these together to get your gross rental income. This is the starting point for every calculation that follows.

Work Out Your Deductible Expenses

Next, total the expenses you incurred to earn that income. Common deductible costs include rates, landlord insurance, property management fees, repairs and maintenance, accounting fees, advertising for tenants, and depreciation on chattels such as heat pumps, carpets and appliances. Note that depreciation on residential buildings themselves is no longer available, so only chattels and certain fit-outs qualify.

The key distinction to keep in mind is between repairs and capital improvements. Replacing a broken section of guttering is a repair and is usually deductible straight away. Installing a brand new kitchen or adding a deck is a capital improvement, which is not immediately deductible and instead adds to the cost of the property.

DEEPER DIVE: 10 Arizona restaurants make Yelp’s Top 100 Mexican food spots

Claiming Mortgage Interest on an Investment Property

For most landlords, mortgage interest is the single largest expense, so it has a major effect on whether the property shows a profit or a loss.

New Zealand’s interest limitation rules previously phased out deductions for residential investment property. Those rules have now been reversed. Investors could claim 80% of their interest for the 2024/25 income year, and from 1 April 2025 interest deductibility has been fully restored to 100% for residential rental properties, regardless of when the property was bought.

There are a few important points to remember when you claim mortgage interest on an investment property:

  1. Only the interest is deductible. Principal repayments reduce your loan but are not an expense.
  2. The loan must have been used to buy or improve the rental. If you borrowed against the rental to fund a car or a holiday, that interest is not claimable.
  3. If the property is used privately for part of the year, such as a holiday home, the interest must be apportioned.

Because the borrowing purpose matters more than which property secures the loan, investors with multiple properties or a mix of personal and investment debt often benefit from having their loan structure reviewed. This is where specialist advice from a firm like PKF Property Accountants can make a real difference, helping you trace funds correctly and avoid claiming interest that IRD could later disallow.

Put It All Together

Once you have both totals, the calculation is simple:

Rental income minus deductible expenses equals rental profit or loss.

For example, if your property earned $36,400 in rent over the year and your deductible expenses (including $21,000 in mortgage interest, $3,800 in rates, $2,100 in insurance, $2,900 in property management and $1,800 in repairs and chattel depreciation) added up to $31,600, your rental profit would be $4,800. That profit is added to your other income and taxed at your marginal rate.

If expenses had exceeded income, you would have a rental loss instead.

What Happens if You Make a Loss?

Under the residential loss ring-fencing rules, a loss on a residential rental cannot be used to reduce tax on your salary, wages or business income. Instead, the loss is carried forward and offset against future residential rental profits, or against taxable income when the property is sold. These rules remain in place even though interest deductibility has been restored, so it is worth planning for how and when any losses will be used.

Keep Good Records

Accurate calculations rely on accurate records. Keep invoices, bank statements, loan statements, rates notices and receipts for every expense. A separate bank account for each rental makes tracking income and outgoings far easier, and it gives you clear evidence if IRD ever asks questions.

Get the Numbers Right

Calculating your rental profit or loss each year gives you a clear picture of how your investment is really performing and makes sure you pay the right amount of tax. With interest deductibility back at 100%, now is a good time to review your loan structure, your expense claims and your overall property strategy.

PKF Withers Tsang is an Auckland-based chartered accounting firm with decades of experience supporting property investors, developers and landlords across New Zealand. As part of the global PKF network, their team provides proactive tax planning, rental property compliance and structuring advice that goes beyond year-end returns.