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Income Tax Act 2007

Timing and quantifying rules - Allocation of deductions for excess residential land expenditure

EL 1: Outline of subpart: general

You could also call this:

“This section summarises how deductions for residential land expenses are limited and carried forward”

This part of the law explains how your deductions for expenses related to residential land are limited. You can only deduct expenses up to the amount of income you earn from that land. If your expenses are more than your income, you can’t deduct all of them right away.

Any extra expenses that you can’t deduct are put on hold for that year. You can use these held expenses in future years when you earn more income from the residential land.

If you sell the land and pay all the required taxes, you might be able to use any leftover expense deductions.

There are different rules for rental properties and for when you sell residential land within a certain time frame (called bright-line disposals). You can find more details about rental properties in section EL 2(1) to (6), and about bright-line disposals in section EL 2(7).

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View the original legislation for this page at https://legislation.govt.nz/act/public/1986/0120/latest/link.aspx?id=LMS223653.

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Part E Timing and quantifying rules
Allocation of deductions for excess residential land expenditure

EL 1Outline of subpart: general

  1. The provisions in this subpart, in general,—

  2. limit a person’s deductions for expenditure incurred in relation to residential land to income derived from the land; and
    1. suspend deductions for the excess expenditure for the income year in which the expenditure is incurred; and
      1. provide that the excess amounts are carried forward to later income years in which the person derives residential income; and
        1. release the excess amounts on fully-taxed disposals of land.

          1. Separate allocation rules apply for—

          2. residential rental property, see the outline in section EL 2(1) to (6):
            1. bright-line disposals of residential land, see the outline in section EL 2(7).

              Notes
              • Section EL 1: inserted (with effect on 1 April 2019), on , by section 62(1) (and see section 62(2) and (3) for application) of the Taxation (Annual Rates for 2019–20, GST Offshore Supplier Registration, and Remedial Matters) Act 2019 (2019 No 33).