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Negative Gearing Guide — Rental Losses and Tax Deductions in NZ

the negative gearing in New Zealand. The guide covers the rental property loss offset against the other income, the interest deduction restrictions under the Interest Limitation Rules, the bright-line test interaction, and the IRD compliance requirements for the property investors.

Rental Loss Offset Rules

The negative gearing occurs when the rental property expenses exceed the rental income, creating the taxable loss. In New Zealand, the rental property losses are generally offset against the other income (the salary, the business income, the dividends) to reduce the overall tax liability. However, the Interest Limitation Rules introduced from the 1 October 2021 restrict the interest deductions on the residential investment property. The phased removal of the interest deductibility applies to the properties acquired before the 27 March 2021, while the properties acquired after that date get no interest deductions. The full interest deductibility was partially restored from the 1 April 2024 with the 50% deductibility for the 2024-25 year and the 80% for the 2025-26 year, returning to the full deductibility from the 2026-27 year. See our Rental Income Guide → for the detailed deductions.

Bright-Line Test Interaction

The negative gearing interacts with the bright-line property test. If the property is sold within the bright-line period (currently 2 years for the residential property acquired from 1 July 2024, reduced from the 5 years), the sale may be taxable as the income. The accumulated rental losses against the other income may reduce the capital gain on the sale. The IRD requires the separate tracking of the rental income and the expenses for each property. Refer to our Property Tax & Bright-Line Guide → for the full rules.