From 1 April 2025, interest on borrowing used for a residential rental is fully deductible again. The phase-out that started in 2021 has been reversed: 80% could be claimed in the 2024–25 year, and 100% from the 2025–26 year onwards, whether the property is a new build or an older house.
That makes the rules simpler, but it doesn't mean every dollar of interest on a loan secured against a rental can be claimed. The test is still what the borrowed money was used for.
The loan purpose decides the claim
IRD looks at how the money was used, not which property the bank took as security. A few common situations:
- **You borrowed against your own home to buy the rental.** The interest is usually deductible, because the money paid for the income-earning property.
- **You borrowed against the rental to buy a car, a boat or your own home.** That interest is private, even though the rental is the security.
- **You topped up the loan or used a revolving credit facility.** Each drawdown needs to be traced. If some went on the rental and some on a holiday, only the rental share counts.
Keep the loan agreement, settlement statement, annual interest summaries and a short note of what each top-up was for. A one-line note written at the time is worth far more than a reconstruction two years later.
Losses are still ring-fenced
Full interest deductibility can push a rental into a loss, especially in the first few years after purchase. That loss generally can't be used against salary, wages or business income. It is carried forward and used against future residential rental income, or against taxable income when a property is sold.
So a bigger interest deduction doesn't always mean a refund this year. It may simply mean a larger loss to use later. Plan cash flow on that basis.
Records worth keeping each year
For each property, keep:
1. the bank's annual interest statement for every loan 2. a note of any refinancing, top-up or loan split during the year 3. the settlement statement if the property was bought or sold 4. a schedule of rent, rates, insurance, repairs, property management fees and chattel depreciation
Prepare the result property by property rather than as one blended figure. It makes ring-fencing easier to track and gives you a clearer view of which property is pulling its weight.
When to get the detail checked
Ask for help before filing if you used a property privately for part of the year, moved a property into a company or trust, sold within the bright-line period, or have a loan funding more than one purpose. These are the cases where an old spreadsheet carried forward tends to go wrong.