In New Zealand, extending a rental property mortgage may not directly reduce taxable income, while interest on loans for property improvements is typically deductible. Expert consultation with tax professionals is essential for navigating these complexities and ensuring compliance with evolving tax regulations.
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“I own a rental property which we lived in for six years; it has $180k left on the mortgage. Would I be able to extend this mortgage to put on my primary residence mortgage so then my tax-deductible income is lower? Similarly, would I be able to lend against the property to make improvements (new flooring and paint) that are not deductible expenses normally? Or are there rules around extending a rental mortgage?”
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It’s essential to consult with a tax professional or financial advisor in New Zealand to get personalised advice based on your specific circumstances. I can provide some general information on the topic:
Extending the Rental Property Mortgage: Extending your rental property mortgage is a viable option, and you can use the additional funds for various purposes, including consolidating it with your primary residence mortgage. However, it’s essential to understand that extending the mortgage itself won’t directly reduce your taxable income. The deductibility of mortgage interest depends on how the borrowed funds are used. If you use the extended mortgage funds for your primary residence, the interest on that portion may not be tax-deductible for the rental property, as tax deductibility is typically linked to the income-earning purpose of the loan.
Lending Against the Rental Property for Improvements: Borrowing against your rental property to finance improvements like new flooring and paint is a common practice among property owners. In New Zealand, the interest on loans used for property improvements is generally tax-deductible. To ensure the deductibility of these expenses, it’s crucial to maintain clear records and be able to demonstrate that the borrowed funds were indeed used for improving the rental property. This documentation will help you claim the interest as a legitimate deductible expense.
Rules for Extending Rental Mortgages: New Zealand generally doesn’t have specific rules that prohibit extending a rental property mortgage. However, it’s essential to navigate this process carefully and consider the tax implications. Tax laws and regulations can change over time, so it’s advisable to consult with a tax professional or financial advisor who specialises in real estate and rental property investments. They can provide you with guidance tailored to your unique situation, helping you stay compliant with current laws and regulations.
Consult with Experts: Given the complexity of tax laws and the ever-changing regulatory landscape, it’s highly recommended to consult with experts in the field. Reach out to a qualified accountant or tax advisor in New Zealand who has expertise in real estate and rental property investments. They can offer personalised guidance, assess your specific circumstances, and help you make informed financial decisions that not only minimise your tax liability legally but also ensure you comply with the latest tax regulations. This professional guidance is essential for making sound financial decisions regarding rental property ownership.
Hope this helps.
Regards, Clive Fernandes (Financial Adviser)
Director – National Capital
Disclosure: I am the director of National Capital, a KiwiSaver advice firm. The views expressed in this article are the views of the author. The information provided is of a general nature and is not intended to be personalised financial advice. You may seek appropriate financial advice from a Financial Adviser to suit your individual circumstances or contact National Capital.
