Deductions on rental expenses

Martin Jr asks:
(updated on Monday, September 21st 2020)

We currently have a rental property but this property was initially bought as owner-occupied. Due to a change in personal circumstances, the occupier of the property moved back to our family home and we decided to rent out the property instead.

My first question is: Can the costs associated with buying the property and securing the mortgage for the property, such as solicitor fees and valuation fees, still be claimed as deductible expense against the rental income, even though we initially bought the property not for rental purposes?

My second question is: For the ongoing expenses of the rental property such as insurance, rates and mortgage interest, can we start claiming deductions for these at the time the property is available for rent - ie: when we first advertised it for rent? Or can we only claim these expenses against the rental income at the time the tenant moved into the property and started paying rent?

Thank you very much for your response.

Our Experts Answer:

1) No only expenses incurred that relate to the deriving of rent from the property will be deductible. These would become deductible only once the property has been made available for rental. There was no nexus with income related to the costs incurred at the point of acquisition.

2) The holding costs become deductible from the point where the property was available for rental. Note, any work on the property that was done pre tenant will not be deductible as this would be considered to relate to the domestic use.

Heartland Bank - Online 1.85
The Co-operative Bank - First Home Special 2.09
SBS Bank Special 2.19
TSB Special 2.25
The Co-operative Bank - Owner Occ 2.25
Kainga Ora - First Home Buyer Special 2.25
ICBC 2.25
AIA 2.25
Westpac Special 2.25
HSBC Special 2.25
ANZ Special 2.25
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Heartland Bank - Online 2.35
TSB Special 2.49
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BNZ - Classic 2.55
The Co-operative Bank - Owner Occ 2.59
AIA 2.59
Westpac Special 2.59
ASB Bank 2.59
HSBC Premier 2.89
China Construction Bank Special 2.99
ICBC 2.99
SBS Bank Special 3.19
Kainga Ora 3.37
The Co-operative Bank - Owner Occ 3.39
TSB Special 3.39
AIA 3.39
Kiwibank Special 3.39
BNZ - Classic 3.39
ASB Bank 3.39
Heartland Bank - Online 1.95
Resimac 3.39
Kiwibank - Offset 3.40
Kiwibank Special 3.40
Kiwibank 3.40
Bluestone 3.49
Select Home Loans 3.49
ICBC 3.69
The Co-operative Bank - Standard 4.40
The Co-operative Bank - Owner Occ 4.40
Kainga Ora 4.43