If your rental property costs more than it earns, you have a loss. In New Zealand, that loss is usually ring-fenced. Here is what that means.
What ring-fencing means
Excess deductions (your rental loss) cannot be used to reduce tax on your salary, wages or business income. Instead, they are carried forward and used against residential rental income in future years.
Portfolio or individual property basis
Portfolio basis (default): all your residential rentals are treated together, so a loss on one can be used against profit on another.
Individual property basis: if you have two or more properties, you can put some on an individual basis. Once a property is on the portfolio basis, you cannot change it to the individual basis.
When you sell
Rental deductions can be claimed up to your rental income, including income from selling a property where the sale is taxable. The basis you used for a property affects what happens to excess deductions when it is sold - we check this for you.
Properties outside the rules
Your main home
Holiday homes under the mixed-use asset rules
Property that will be taxed on sale, whenever it is sold
Farmland and property used mainly as business premises
Property owned by a company that is not a close company
Employee accommodation
Who the rules apply to
Individuals, partners, shareholders in look-through companies and close companies, and trustees. The rules cover all your residential land, including overseas residential property.
Keep good records
Your excess deductions need to be tracked every year so they can be used later. When we prepare your return, we keep this record for you.
Need help? Yugraj CA is a Chartered Accountant (CA) firm helping property owners across New Zealand, fully online. Call 021 0234 6659, email ysm@yugrajca.co.nz, or see our property accounting services.
Disclaimer: This article is general information only, based on Inland Revenue guidance as at October 2026. It is not tax, legal or financial advice for your situation, and tax rules can change. Please talk to us, or another qualified adviser, before acting. Yugraj Singh Mahil Chartered Accountants Limited does not provide financial, investment or mortgage advice. Last reviewed: October 2026.
