Many costs incurred in earning rental income may be deductible, provided they satisfy Inland Revenue's rules and are not capital or private expenditure. A cost that adds to the property rather than earns income from it is capital. The figure that matters most this year is interest: from 1 April 2025, 100 percent is deductible again, provided the usual requirements are met, up from 80 percent the year before.
Oxygen has managed rentals across Wellington and Hawke's Bay for more than 35 years and became part of Crockers Property Group in 2024. This guide covers both regions, including two questions national guides often skip: seismic strengthening on older Wellington buildings, and storm damage repairs in Hawke's Bay. For filing mechanics, see our rental property tax and filing guide.
Quick answers
Can I claim all of my mortgage interest?
Generally yes, from 1 April 2025. Principal repayments are never deductible.
What is the difference between a repair and an improvement?
A repair usually restores the property to its prior condition. An improvement usually takes it beyond that. See the section below, the test is fact-dependent.
Can I claim property management fees?
Yes, as a cost of earning rental income.
What if my expenses are more than my rental income?
Excess deductions are ring-fenced. They cannot offset your salary or other income, but generally carry forward against future residential rental income.
Do I need to keep receipts?
Yes, for 7 years.
What makes a cost claimable
The underlying test is simple: the cost has to relate to earning rental income, not to buying the property, improving it, or private use. See Inland Revenue's rental expense deductions for the full list.
Long-term residential rent is exempt from GST, so GST on related expenses cannot be claimed back separately, and you generally record and claim these costs GST-inclusive. See how rental income is taxed. Where a property is used privately for part of the year, costs must be apportioned, covered below.
Rental expenses you can claim
The table below covers common rental property expenses. The three most misunderstood lines are covered in more detail underneath.
EXPENSE | EXPENSES GENERALLY DEDUCTIBLE NOTE | NOTE |
Mortgage interest | Yes, 100% from 1 April 2025 | Interest only, not principal |
Property management and letting fees | Yes | Includes tenant advertising |
Rates and water | Yes | |
Insurance | Yes | Building and landlord cover |
Repairs and maintenance | Yes | Materials and trade labour, not your own time |
Chattels depreciation | Yes | Carpets, curtains, whiteware, many single-split heat pumps |
Body corporate levies | Partly | Depends what the levy is spent on |
Accounting and tax agent fees | Yes | |
Legal fees on purchase | Yes, if total legal fees for the year are $10,000 or less | |
Seismic strengthening | Usually not | Generally capital when part of a strengthening project, see Wellington section |
Mortgage interest
Interest is 100 percent deductible from 1 April 2025, up from 80 percent for the year before, regardless of when the property was bought or the loan taken out. Only the interest portion is deductible, principal repayments never are.
Property management and letting fees
Management fees, letting fees and tenant advertising are deductible. See property management in Wellington or property management in Hawke's Bay for how that service works in each region.
Depreciation on chattels
Chattels can be depreciated individually, a chattels valuation at purchase makes this straightforward. Items Inland Revenue treats as part of the building rather than as separate chattels, including standard light fittings, insulation and ducted or multi-unit heat pump systems, sit within the building's 0 percent rate instead.
Repairs or improvements, and why the difference matters
A repair restores the property to the state it was already in. An improvement takes it beyond that, whether added capacity or a feature the property did not have before. Repairs are claimed in the year incurred, improvements are capital and are not deductible, though the new item may itself be a depreciable chattel.
This is a practical guide, not a definitive test. Inland Revenue looks at the specific asset involved and the nature and extent of the work, and better materials alone do not automatically make a job capital. Substantial replacements or jobs that mix repair and improvement work are where it pays to check with your tax adviser.
Worked examples
WORK DONE | USUAL TREATMENT |
Replacing rotten weatherboards on a villa | Repair |
Recladding the whole house in different material | Improvement |
Repainting an existing painted interior | Repair |
Adding a new deck where none existed | Improvement |
Patching a small damaged section of carpet | Repair |
Replacing carpet throughout the property | New chattel, see depreciation above |
Fixing a leaking tap | Repair |
Full bathroom renovation | Improvement |
These are the usual outcomes for straightforward, standalone jobs, not a guarantee for every project. Substantial work, or a job that is part of a larger renovation, can be assessed differently, see the caveat above.
Healthy homes work
Compliance repairs to something the property already had, such as fixing an existing extractor fan, are generally deductible. Installing something new, a first heat pump or underfloor insulation, generally changes the character of the building and is capital, though a single-split heat pump may itself be a depreciable chattel. Wellington's stock of older, originally uninsulated villas makes this worth checking carefully.
Wellington apartments, body corporate levies and earthquake strengthening
Split the levy by what the money is actually spent on, not which fund it sits in. The operating and maintenance portion is deductible. The capital improvement portion is not, even through a long term maintenance fund, since that fund can hold both revenue and capital spending. Your body corporate statement or committee can usually identify the split. See body corporate management for how Oxygen supports Wellington committees with this.
Seismic strengthening is not automatically non-deductible, but in practice it usually ends up capital. Under IS 26/01, Inland Revenue asks what asset was worked on and whether the work changed its character or formed part of a wider capital project. In the 2026 High Court case Podium Investments Ltd v Commissioner of Inland Revenue, strengthening work was capital because it was inseparable from a larger project turning a seismically non-compliant building into a compliant one, even though the physical work itself was limited. Minor, standalone strengthening may be treated differently, and a Building Act 2004 compliance deadline does not itself change the tax treatment. Get advice on your project. A levy raised specifically to fund strengthening follows the same treatment and is not deductible.
Storm and weather damage repairs in Hawke's Bay
Repairs that restore the property to its previous state after a weather event are generally deductible, the same test applies whatever caused the damage. Work that upgrades the property beyond its previous state is capital even when storm-triggered, for example replacing a damaged deck with a larger one.
Insurance changes what you claim. Under Inland Revenue's IR264 guidance, an insurance payout to repair a damaged asset is not included as income, and the portion of the repair cost it covers is not separately deductible. You can still claim any shortfall you pay yourself and any policy excess. A payout larger than the actual repair cost has separate tax consequences, worth checking with your tax agent.
Keep every quote, invoice and insurance settlement letter, since the split between what insurance covered and what you paid has to be evidenced if Inland Revenue asks. Hawke's Bay has faced significant weather-related property damage since Cyclone Gabrielle in February 2023.
Expenses you cannot claim
The purchase price of the property
Principal repayments on the mortgage
Depreciation on the land and the building
Real estate agent commission on buying or selling
Additions and improvements
Seismic strengthening, usually, see the Wellington section above
Legal fees on sale
The value of your own time and labour on repairs
The private use portion of any cost
One exception: legal fees on buying are deductible where your total legal fees for the year are $10,000 or less. Selling is narrower, deductible only if you are in the business of providing residential rental accommodation and under that same $10,000 threshold. Most landlords with one or two rentals are not in that business, so sale legal fees usually are not deductible.
Costs when the property did not earn all year
A gap between tenancies does not usually stop a claim, provided the property is genuinely available to rent, and costs must be apportioned where the property was your home for part of the year or where you rent out part of it.
Travel to inspect or maintain the property is deductible, which matters if you live outside the region. Travel that is mainly private, such as a family trip that happens to include a quick look at the property, is not.
When your expenses are more than your rent
Excess deductions on residential rental property are ring-fenced. They cannot offset your salary, wages or other income. Instead, they are generally carried forward and used against qualifying residential rental income in later years. See Inland Revenue's residential property deduction rules, or our rental property tax and filing guide, for how this is worked through on your return.
Getting the expenses right
A year of costs reconstructed from memory at filing time is where deductions are often missed. Oxygen's IR3 tax filing service already holds much of the property management information needed for a return, reducing the documentation you need to gather elsewhere, particularly if you manage a rental from another region.
This information is general in nature and is not tax advice. Rules change and individual circumstances differ. Talk to a chartered accountant or tax agent about your situation.
If you would like a clearer picture of what your rental could be earning, request a free rental appraisal in Wellington or in Hawke's Bay and we will talk you through it.
Article written by Shanon Aitken, Oxygen Property Management
This article was prepared by the Oxygen Property Management team, drawing on their experience managing rental properties across Wellington and Hawke's Bay.