SearchDeducting costs from rental income
Ryan asks:
(updated on Wednesday, August 22nd 2018)
My partner and I have just bought our first four bedroom home and are looking to rent out the other rooms to flatmates to help pay the mortgage. We understand that we have to declare this as income, however I was just wondering if we can deduct the mortgage interest costs from this income?
Our mortgage is $600,000 and our interest is going to be approximately $26,700 this year. We are renting out three bedrooms in Auckland for a total of $620 a week or $32,240. Can we deduct the $26,700 of interest off the $32,240 of income that we will receive?
Our Experts Answer:
You are right that you need to declare the income from the flatmates as taxable income. While there is an exemption for providing boarding services, if you have flatmates that are paying rent and effectively acting as tenants, then it is taxable income.
You are permitted a deduction for expenditure that is incurred in relation to deriving this income. This means you will be permitted a deduction for interest, but it will not be the total interest paid.
You need to apportion the property between private and rental use and claim the relevant proportion of the interest against the rental income. As a starting point, if three of four bedrooms are rented you may be looking at claiming 3/4 of the interest and other property holding expenses as deductible, although this will depend on the facts.
Most Read
| AIA - Go Home Loans | 4.00 |
| Unity First Home Buyer special | 4.15 |
| SBS FirstHome Combo | 4.29 |
| ICBC | 4.49 |
| Kainga Ora | 4.59 |
| SBS Bank Special | 4.69 |
| Unity Special | 4.80 |
| China Construction Bank | 4.85 |
| Co-operative Bank - First Home Special | 4.89 |
| Co-operative Bank - Owner Occ | 4.99 |
| ASB Bank | 4.99 |
| China Construction Bank | 4.95 |
| Kainga Ora | 4.95 |
| ICBC | 4.99 |
| SBS Bank Special | 5.29 |
| Unity Special | 5.29 |
| Westpac Special | 5.29 |
| Co-operative Bank - First Home Special | 5.29 |
| ANZ Special | 5.35 |
| ASB Bank | 5.35 |
| BNZ - Std | 5.35 |
| AIA - Go Home Loans | 5.35 |
| SBS Bank Special | 5.49 |
| ICBC | 5.65 |
| Kainga Ora | 5.69 |
| ASB Bank | 5.75 |
| BNZ - Std | 5.75 |
| AIA - Go Home Loans | 5.75 |
| Westpac Special | 5.75 |
| Kiwibank Special | 5.89 |
| Co-operative Bank - First Home Special | 5.89 |
| TSB Special | 5.99 |
| China Construction Bank | 5.99 |
| SBS FirstHome Combo | 3.29 |
| AIA - Back My Build | 3.34 |
| SBS Construction lending for FHB | 3.79 |
| CFML 321 Loans | 4.20 |
| ICBC | 5.39 |
| Co-operative Bank - Owner Occ | 5.69 |
| Co-operative Bank - Standard | 5.69 |
| Kainga Ora | 5.79 |
| Pepper Money Prime | 5.99 |
| Unity Standard | 6.04 |
| Unity Special | 6.04 |
