Ring-fencing rental losses

From 2019-20 income year, landlords can no longer offset their residential properties deductions against their other income.

The deduction for residential properties’ rental losses are ring-fenced so they can only be used against income from property and cannot use rental losses to offset other income like salary and wages.

There are still some residential properties that will not be affected by the ring-fencing rules. This includes the family home, properties subject to mixed-use asset rules, farmland, properties used mainly as a business premises, land that is already taxable, properties owned by companies, employee accommodation, and properties for short term accommodation like Air BNB.

For those who have more than one property, the rules can be applied on a portfolio basis or property by property basis.

Portfolio basis

This is the default basis for handling residential income deductions. The ring-fencing rules are applied to all affected properties as a single portfolio each tax year, therefore the deductions can be offset by any income you earn from all the properties in the portfolio.

Property by property basis

The deductions for each property is dealt with on a property by property basis and can only be offset against the income from that property. Excess rental losses can only be carried forward for each property individually. This method will require accurate record keeping to show the deductions for each property were only claimed against the income from that property.

Please contact us if you have any questions about the ring-fencing rules and how they apply to you.

Source: IRD

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