Rental Property Tax and IR3 Guide

If you rent out a residential property in New Zealand, the rent you earn is generally taxable income. Landlords generally calculate their taxable rental income by deducting allowable rental expenses from the rent and other rental income they receive.

This guide explains three things: how taxable rental income is worked out, how the IR3 and IR3R returns work, and the common rental property expenses landlords may be able to claim. It is written for landlords in the Wellington and Hawke's Bay regions, though the tax rules are national and apply throughout New Zealand.

Many Wellington and Hawke's Bay landlords own a rental in one region while living or working in another, or hold a property across both. That does not change the tax rules, but it does make good records and a clear filing process matter more, because the paperwork is easy to lose track of when you are not close to the property.

This page provides general information only. It is not personalised tax advice. For your own situation, check the current rules with Inland Revenue.

How rental income is taxed in New Zealand

Landlords generally pay tax on their net rental income, not on the total rent collected. Net rental income is worked out by taking gross rental income and subtracting allowable rental expenses.

Gross rental income is more than just rent. It can also include other property-related income, such as some insurance payouts or tenant reimbursements for costs you have claimed. Your net rental income is then added to your other taxable income for the year, such as salary or wages, and taxed at your marginal income tax rates.

Because rental income is combined with your other income, the actual tax you pay depends on your total taxable income for the year, not on the rental income on its own. Two landlords with identical rental profits can pay different amounts of tax if their other income differs.

A few points worth knowing:

• GST: long-term residential rent is exempt from GST, so residential landlords do not add GST to rent or claim GST on expenses  (Inland Revenue).
• Records: Inland Revenue expects landlords to keep clear records of income and expenses. Records generally need to be kept for at least seven years.
• Ring-fencing: the residential property deduction rules limit how rental losses can be used. More on this below.
• Provisional tax: if your residual income tax for the year is more than $5,000, you will usually be a provisional taxpayer the following year and pay tax in instalments (Inland Revenue).

A simple worked example

This example is simplified. It shows how net taxable rental income is calculated. It does not work out the landlord's final tax bill, because that depends on their total income for the year.

Gross rental income: $28,600
Less allowable expenses: $19,400
Net taxable rental income: $9,200

The $9,200 net rental income is added to the landlord's other income and taxed at their marginal rates. The figures here are illustrative only, not a guide to typical Wellington or Hawke's Bay rents.

What is an IR3 return?

An IR3 is an individual income tax return. It is used to report income that has not already been fully taxed before you received it. Rental income is a common reason a landlord needs to file one.

Inland Revenue describes the threshold as more than $200 of income before tax that it has not been told about. Rental income from a property you own personally generally falls into this category, because tax is not deducted before the rent reaches you. Expenses and any resulting profit or loss are then accounted for in the return.

Key points for individual landlords:

• Rental income and expenses are declared in the return, supported by the IR3R schedule (see below).
• Most people file through myIR, Inland Revenue's online service.
• A registered tax agent can file on your behalf and manage the process for you.
• The standard filing deadline is 7 July after the tax year ends on 31 March (Inland Revenue).
• If you use a tax agent or have an approved extension of time, you may be able to file later than 7 July. Any tax to pay is generally due by 7 February the following year.

This guide assumes the property is owned personally. Properties held through companies, trusts or partnerships have different filing requirements and are outside the scope of this page.

What is an IR3R rental income schedule?

An IR3R is the rental income schedule that supports an IR3 return. It sets out the rental income and expenses for a rental property so the net rental figure can flow into the main IR3.

In short, the IR3 reports all of your income for the year, while the IR3R breaks down the rental side of that income. A separate schedule is generally completed for each rental property so income and expenses are recorded property by property. You should check the current Inland Revenue process, as the way schedules are completed can change.

What landlords need before filing

Having the right information ready makes filing far easier. A typical checklist includes:

• Your IRD number
• Total rental income for the year
• Property management statements
• Rates and insurance records
• Loan interest information
• Invoices and receipts for repairs and maintenance
• Accounting or tax agent costs
• Details of any private use of the property
• Information about any property sale or ownership change during the year, where relevant

Rental property expenses landlords may be able to claim

Expenses must generally relate to earning rental income to be deductible. Some expenses are fully deductible, some must be split between rental and private use, and some are capital costs that cannot be claimed straight away. The table below is a general guide only (Inland Revenue).

EXPENSE	Generally deductible?	Important points
Council rates	Usually	Cover for the rental property is generally deductible.
Property insurance	Usually	Cover for the rental property is generally deductible.
Property management fees	Usually	Management fees charged for running the rental are generally deductible.
Letting fees	Usually	Fees to find and place a tenant are generally deductible.
Repairs and maintenance	Usually	Deductible if they restore the property, not improve it. Improvements are capital.
Mortgage or loan interest	Usually, from 1 April 2025	100% deductible for most residential rentals from 1 April 2025, if requirements are met.
Accounting and tax agent fees	Usually	Costs to prepare the rental tax return are generally deductible.
Chattels depreciation	Usually	Depreciation on qualifying chattels, such as appliances and carpet, may be claimed.
Body corporate levies	Often	Levies for a unit-title rental may be deductible, though some capital contributions differ.

On interest: interest deductibility returned to 100% from 1 April 2025 for most residential rental properties. This is subject to the usual requirements for deductibility and the borrowing being connected to the rental property. It does not mean every loan or interest payment is automatically deductible, so check how the rules apply to your loan (Inland Revenue).

It helps to separate repairs from improvements. Fixing a leaking tap or repainting to keep the property in its existing condition is usually a repair and deductible. Replacing an old kitchen with a substantially better one is more likely an improvement, which is a capital cost and cannot be claimed immediately.

Expenses landlords generally cannot immediately claim

• The purchase price of the property
• Mortgage principal repayments (only the interest may be deductible)
• Private expenses, and the private-use portion of mixed expenses
• Capital improvements that add to or upgrade the property
• Legal costs of purchasing the property, subject to the applicable tax rules

What happens when rental expenses exceed rental income?

When allowable expenses are more than rental income, the loss is generally ring-fenced. This is known as the residential property deduction rules.

In practice, excess deductions are usually carried forward and offset against future residential rental income, rather than deducted against your salary or wages. The rules include some exceptions and detail, so refer to Inland Revenue for how they apply to your situation.

Is the sale of a rental property taxable?

Sometimes. The bright-line test and other land-sale rules can make the sale of a rental property taxable, even though New Zealand has no general capital gains tax.

For property sold on or after 1 July 2024, the bright-line period is generally two years. If you sell within that period and no exclusion applies, any profit is generally taxable. Exclusions, the exact start and end dates, and other land-sale rules can all affect the outcome, so this is an overview only. Check Inland Revenue or seek advice before selling.

How Oxygen can help with your landlord tax return

Oxygen offers an IR3 tax return service for eligible individual landlords whose residential rental properties are managed by Oxygen in the Wellington and Hawke's Bay regions. The service covers preparation of the individual IR3 return, including the relevant residential rental income and expenses and the IR3R schedule.

It is a focused service. It is not a general accounting service, year-round bookkeeping, or a service for companies, trusts or partnerships. It does not cover income or business activities outside the agreed scope, and it is not personalised financial or investment advice.

Because Oxygen already holds much of the property management information needed, the service can reduce the amount of documentation you need to gather from different providers. That is often most useful for landlords managing a rental from another region, where records can otherwise be spread across several places. 

About this article, and how to get help

This guide was prepared by the Oxygen Property Management team, drawing on their experience managing residential rental properties across the Wellington and Hawke's Bay regions, using current Inland Revenue guidance.

Make managing your rental and preparing your IR3 simpler.  Talk to Oxygen about our property management and landlord tax return service.