— Reinstated interest deductibility fixed cashflow, but capital gains are missing
The mantra of New Zealand property investors through the 2010s was to accept a property that loses money every month, because the capital gain at the end will dwarf the shortfall along the way.
Interest deductibility was part of that story, until it was phased out to zero in 2021 by the Labour Government led by then Prime Minister Jacinda Ardern.
The national government reversed the changes, restoring full deductibility from 1 April 2025 – at about the same time capital gains started to fade.
Cashflow maths today
On a $600,000 Auckland mortgage at 6.5% borrowing rate, the swing from 0% to 100% deductibility is worth roughly $12,870 a year in tax saved at the 33% rate, or $15,210 at 39%. Modelled against a larger, more leveraged purchase, the effect is starker still: one worked example for a $900,000 Auckland property bought with a 35% deposit shows the annual top-up an investor needs from other income falling from roughly $23,923 to $11,375 once full deductibility applies. The property still loses money every year, but around half as much.
Opes Partners puts the compounding effect at about $15,000 this year and roughly $176,000 over 15 years for an investor who bought in 2020.
| $900,000 Auckland rental, 35% deposit | Before (0% deductible) | Now (100% deductible) |
| Annual mortgage interest | $38,025 | $38,025 |
| Tax benefit from deductibility (33% rate) | $0 | $12,548 |
| Annual top-up needed from other income | $23,923 | $11,375 |
What hasn’t change
Deductibility narrows the loss, but losses remain. National gross rental yields sit around 4.2% in 2026, little different from the roughly 3.9% recorded in early 2025 and still well below the 4.5% average of 2010. Net yield, after rates, insurance, management and maintenance, typically runs one and a half to two points lower again, leaving most leveraged investors, even now, running a cash loss before considering principal repayments.
Ring-fencing also remains in force: a rental loss can only be carried forward against future rental profit, not offset against salary or wages, so the tax benefit shows up as a smaller annual shortfall rather than a cheque.
Capital gains have all but vanished
As this issue’s market roundup covers, 13.1% of New Zealand property resales in the June quarter went for a loss – the highest share since 2012 in a downturn Cotality’s Kelvin Davidson calls the longest and deepest in at least 30 or 40 years.
Investors still profiting held a median 10.4 years whereas the ones taking a loss held just 4.3 (broadly, those who bought at or near the 2021 peak). None of that is likely to reverse quickly: Davidson’s own guess is no meaningful recovery before next year at the earliest.
An investor weighing whether to hold today faces a rather stark choice between slightly improved cashflow and no capital gain at all (for now).
Exits now cheaper – for some
One further change complicates a blanket “just hold” answer. The bright-line test is now two years for properties acquired from 1 July 2024, down from five or 10 years for earlier purchases.
For anyone who bought before that date, selling still risks a bright-line tax event on top of a market-driven loss. For anyone who bought after it, that particular cost has been eliminated.
Why am I still holding this?
Under the old trade, holding was a bet that capital gain would more than compensate for a cashflow shortfall. Under the current conditions, holding is closer to a cost-management decision. The shortfall is smaller, as deductibility makes it more sustainable to wait, but there’s no longer an obvious growth story.
That’s not necessarily a reason to sell, but it is a reason to run the after-tax cashflow on each property rather than lean on the old assumption that time in the market fixes everything, eventually.
For a portfolio bought well before the 2021 peak, on reasonable yield, improved cashflow is a genuine net win. For a highly leveraged purchase from 2021, in an apartment, in Auckland or Wellington, the tax change makes holding more affordable. But it doesn’t make it profitable.
Want to run the after-tax numbers on your own portfolio? Call us on 0800 GOODWINS.
