One thing that gets us excited is property investment! Even more so when we start to see a turn in the market that shows positive signs for our investor clients, and we want to tell you about it.
Restoring Interest Deductibility
Recently the Associate Finance Minister announced the Government has agreed to restore deductibility for mortgage interest on residential investment properties.
This means the ability to deduct interest expenses is phasing back in. This starts from 1 April 2024 – all affected taxpayers will be able to claim 80 percent of their interest expenses. Furthermore, this will increase to 100 percent from 1 April 2025 onwards.
To put it simply:
Currently: 60% of interest costs on loans for residential investment properties are deductible.
2025: Deductibility will increase to 80%.
2026: Deductibility will increase to 100%
Landlords have been hit with a double whammy of rising mortgage interest rates and increasing interest deductibility limitations during a cost-of-living crisis. This put pressure on landlords and renters by pushing costs up and making it harder for Kiwis to save for their first home.
In the past, removing the ability for landlords to claim interest expenses made residential properties less attractive. In turn, this also reduced the pool of properties for tenants to choose from.
Bright-Line Test
You’ve probably heard about the Bright-Line Test before. It’s a tax rule in NZ which determines if the profit from selling a property is taxable. It applies if the property is sold within a specific period after purchase.
The rollback of the Bright-Line Test from 10 years back to 2 years is a positive change in the investor space. (Specifics: Properties acquired before July 2022 and sold after July 2024 are expected to be exempt from the Bright-Line Test)
What does this mean for you as an Investor?
This is a good sign for those looking to start (or continue) property investment.
The increase in interest deductibility will boost the cashflow of investment properties, and the decreased time of the Bright-Line Test will reduce the tax exposure for many looking to sell an investment property after July 2024.
One of the most fulfilling parts of our job is how many of our friends, family and clients we’ve been able to help get into their own investment properties. It’s a great feeling being able to help you achieve your financial goals, and we love being a part of the process to make your experience smoother!
If you’ve been thinking of starting your investment property journey, contact the SM Property team today. We want to help make those dreams a reality! Visit our Instagram for weekly updates!
