What Is a Mixed-Use Asset? (IRD Rules Explained)

What qualifies as a mixed-use asset

The IRD considers a property a mixed-use asset if it is used for both private purposes (staying in it yourself or with family) and to earn income (renting it out), and if it is also unused for at least 62 days during the income year. A holiday home you rent out for part of the year and use yourself for the rest is a classic mixed-use asset. So is a bach that sits empty in winter and generates income in summer when you and your whanau use it occasionally.

All parts of the definition matter. The property must have private use, income-earning use and at least 62 days when it is not in use during the income year. A property with no private use is not brought into the mixed-use asset rules merely because it is vacant for 62 days. Inland Revenue also has specific rules for working out private-use and income-earning days, including some use by associated people, so classify each day from the current guidance rather than assuming maintenance or availability has one universal treatment.

The IRD introduced mixed-use asset rules to prevent owners from claiming full deductions on a property that is not primarily an income-earning asset. It is a tax fairness measure: you should not be able to claim 100 percent of expenses against the portion of income you earn while using the property for personal holidays.

How income and expenses are split between private and income-earning use

Once a property qualifies as mixed-use, you cannot simply claim all expenses against all income. Instead, you must apportion expenses between private use and income-earning use based on the number of days used for each purpose. If your holiday home is rented out 200 days per year and used privately 50 days per year (totalling 250 days of actual use), then 80 percent of certain expenses are deductible (200 divided by 250). The remaining 20 percent relates to private use and cannot be claimed.

Gross rental income remains income. The day-based formula apportions shared expenses; it does not reduce the rental receipts you declare to the same percentage. Expenses that relate only to earning income can have different treatment from shared expenses, while private expenses are not deductible. Record income and each expense category separately before applying the appropriate deduction rule.

Which expenses you can claim and the 2% income threshold

You can claim deductions for expenses that relate to the income-earning use portion of your property. These include rates, insurance, maintenance and repairs (apportioned), utilities (apportioned), interest on a loan (apportioned), and some advertising or booking platform fees. You cannot claim expenses that are purely private, such as your own meals or entertainment during personal use periods. Capital expenses like buying the property or major renovations cannot be claimed in the year they occur.

There is a critical restriction: if your income from renting the property is less than 2 percent of the property's value in any year, and your allowable deductions exceed your income, you can only claim a deduction equal to the income earned that year. The excess deductions carry forward to future years. For example, if your holiday home is valued at $500,000, you need at least $10,000 in rental income that year to claim all your deductions. If you earn only $8,000 and your apportioned expenses total $12,000, you can only claim $8,000 in that year. The $4,000 excess carries forward to the next year, where you can claim it if that year's rental income exceeds that year's allowable deductions.

GST registration and how it applies to mixed-use assets

If you earn income from short-stay accommodation (holiday lets), you must register for GST if your turnover from all taxable activities exceeds $60,000 in any 12-month period. Short-stay rental income (stays of less than 28 days) is a taxable activity for GST purposes. Long-term residential rentals are GST-exempt, but holiday homes used for short stays are not. If you run multiple holiday homes or combine holiday lets with other taxable activities, the $60,000 threshold applies to your combined turnover across all of them.

GST has its own mixed-use adjustment rules and those rules changed for short-stay accommodation from 1 April 2024. The income-tax day formula should not be copied into a GST return. GST deductions and adjustments depend on intended and actual taxable use, marketplace treatment, private use and the type and value of the asset. Use Inland Revenue's current mixed-use GST guidance for the filing period.

Voluntary GST registration can create ongoing return, adjustment and disposal consequences, including potential GST when the property is sold or its use changes. It is not automatically a cash-flow gain. Model the full ownership and exit position with an accountant before registering voluntarily or claiming GST on acquisition and major property costs.

Why IRD classifies holiday homes this way

The mixed-use asset rules exist because a property is not purely a business asset if you use it yourself. The IRD's position is that you should not claim tax relief for the portion of a property that brings you personal enjoyment or benefit. The apportionment method ensures that deductions align with the income the property actually generates. The 2 percent threshold reflects a policy decision: if you are barely earning anything from renting (less than 2 percent of the property's value), the IRD limits how much loss you can claim in that year, because the property begins to look more like a personal holiday asset than a rental business. This prevents owners from using rental losses to offset other income when the property is only marginally income-producing.