What exactly is interest deductibility? In this quick blog we’re looking at what interest deductibility is and what do these new rules mean?...
When you think about investment property, you’d expect that it should be possible to produce a positive return, right?…A crucial piece to this puzzle is interest deductibility.
The government is making some changes to these tax rules, and it's like they're putting a missing puzzle piece back in.
Understanding the Puzzle Piece - Interest Deductibility:
Okay, so here's the deal: when someone owns a house they're renting out, if they have a home loan associated with that property they’ll be paying the bank interest on that home loan. But now, the government is saying, "Hey, if you're paying money for that mortgage, we'll let you subtract some of it from the money you make renting the house." It's like getting a discount on your tax and therefore reducing the overall cost of owning a rental property.
Changes in the Past and Now:
A while ago, the government said, "No more discounts for landlords!" They wanted to help people trying to buy their first house. The new government is arguing that that’s actually had a negative impact on the housing market, but especially for renters facing increasing rents so are basically saying, "Let's bring back those discounts, but not all at once."
Good News for Landlords and Renters:
Starting from April 1, 2024, landlords can include 80% of the mortgage interest into their expenses, hence reducing overall profitability and therefore the tax they pay on that figure. And from April 1, 2025, they can include the whole lot —100%! The idea here is that this little tax break makes it easier and more viable for landlords to keep renting out houses and less pressure to increase rents. More houses to choose from means more options for people looking for a place to live.
Chat to us for more!
We all know that the uncertainty that can sometimes come from renting and the satisfaction you get from home ownership means that buying your own home as soon as you can is a goal for many Kiwis.
So if you’d like to chat about how you can be a homeowner as soon as possible, book in a call with one of our friendly advisers today!
Or…if you’re considering adding a rental to your property portfolio or if that’s even possible then also, please book in a call today to chat through the options.