What Can I Claim on My Holiday Home?

Core deductible expenses and what the IRD allows

Expenses incurred in earning rental income can include eligible rates, insurance, cleaning, utilities, advertising, booking software, management and professional fees. Mortgage principal is not an expense deduction. From 1 April 2025, the residential property interest limitation was fully phased out, but interest still needs to satisfy the general deductibility rules and must be traced to income-earning borrowing. Private use remains non-deductible.

Furniture, appliances and some fit-out assets may have depreciation treatment. Repairs and maintenance must be distinguished from capital work by looking at what was done and the asset being restored; a roof replacement is not automatically a deductible repair. Keep invoices and obtain tax advice for renovations, replacements or improvements instead of relying on a simple 'would I incur it anyway' test.

Interest deductions (100% from April 2025)

From 1 April 2025, you can claim 100% of the interest on money you borrowed to buy or improve your holiday home. This is a significant change. Prior to April 2025, interest on residential rental property was subject to limitations, but those restrictions have been removed. You can now claim all of the interest expense against your rental income, dollar for dollar.

Interest on a mortgage, a bank loan, or a credit facility used to finance the property or its improvements all qualify. Keep records of the loan amount, interest rate and how the borrowed money was spent, to show the IRD that the loan was for the property and not for personal use.

Mixed-use properties (private and rental use)

If you rent the property out some of the time and use it privately (for example, a bach you stay in during summer and rent in shoulder seasons), you can only claim expenses for the days it was rented or available for rent. If it costs $1,000 per month to run the property (rates, insurance, utilities) but it was only rented for 15 of 30 days in that month, you can only claim $500 of those costs.

Mixed-use properties trigger additional rules. If your holiday home's deductible expenses exceed its income in a year, and your rental income is less than 2% of the property's value, you cannot claim the full excess. Instead, you can only claim expenses up to the amount of rental income. The balance of expenses carries forward to future years when the property generates more income and can support them.

Carrying forward losses and what you cannot claim

An excess of expenses over income is not always immediately claimable and does not always follow one carry-forward rule. Mixed-use asset limits and residential rental deduction rules can ring-fence or carry forward amounts in different ways. Calculate the result under the rules that apply to the ownership structure and property rather than assuming every loss offsets other income or remains available indefinitely.

You cannot claim capital improvements like building a new deck, installing a hot tub, or replacing the roof with premium materials. These go on your balance sheet as asset improvements and are recovered when you sell. (Replacing an old roof like-for-like is maintenance and is deductible, but upgrading to premium materials is capital.)

You also cannot claim any expenses for days when you or your family use the property privately. If your bach costs $1,000 per month to run but you use it privately for 10 of 30 days, you can only claim $666.67 of costs. The allocation is strict and the IRD audits this carefully. Home office expenses, even for booking management, cannot be claimed as a holiday home expense.

Record keeping, GST, and practical examples

Keep receipts and records for all expenses claimed. The IRD can ask for proof of maintenance costs, insurance premiums, rates bills and utilities. Electronic records are fine; keep them for at least seven years. If registered for GST, keep records showing which expenses you claimed GST back on, as this appears in your GST returns.

Illustrative example: A bach costs $12,000 per year to run. It earns $20,000 in rental income. You can claim all $12,000, leaving taxable profit of $8,000. If you used it privately for 10% of the year, you can only claim $10,800, leaving taxable profit of $9,200. If it cost $25,000 but earned only $20,000, you have a $5,000 loss that carries forward to offset next year's income.

For loss-making properties, you need particularly good records to show the IRD that you operate it as a genuine income-earning venture, not just a personal holiday home. The IRD audits this carefully if a property is unprofitable for multiple years. Talk to a tax professional if your property is consistently unprofitable, as it may trigger IRD inquiries.