Inland Revenue has issued a reminder to landlords that they can no longer offset residential property deductions against their other income.
Often referred to as “ring fencing rental losses,” deductions for residential properties are ring fenced so they can only be used against income from that property – meaning landlords cannot use rental losses to offset other income like salaries and wages.
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Under the rules, landlords can only claim deductions up to the amount of income they earn from rental properties for the year. Landlords must carry forward deductions over that amount, but they can use these deductions to offset rental income in future income years.
All rental property owners who run their rental properties at a loss will be affected, including so-called “mum and dad” type investors with one or two rental properties and property owners with larger portfolios.
While the rules generally apply whether the property is held in a partnership, trust or company, they don’t apply to a main home, farmland, or property used mainly as a business premises. Additionally, if a taxpayer owns more than one residential rental property, they can choose whether to apply the rules across their portfolio or on a property-by-property basis.