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Income Tax Act 2007

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

EL 6: Choosing to apply rules on property-by-property basis

You could also call this:

“Choosing to manage rental property expenses individually”

You can choose to apply the rules for deducting expenses related to rental income for each property separately, even if you own multiple properties. This means you can decide how much you can deduct for each property in a year, instead of treating all your properties as one group.

If you choose this option for a property (let’s call it Property A), you can only use the income and expenses from that specific property when figuring out how much you can deduct. You can’t mix it with information from your other properties.

If you end up with more expenses than income for Property A in a year, you can’t use the extra amount right away. Instead, you can save it and use it in a future year when you earn rental income from Property A.

To choose this option for a property, you need to show it in your tax return for the year when you first start renting out the property. You can keep using this option in future years as long as you keep doing your taxes the same way. If you change how you do it, Property A will become part of your group of rental properties.

If you already owned rental property at the start of the 2019-2020 tax year, you need to choose this option in your tax return for that year if you want to use it.

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View the original legislation for this page at https://legislation.govt.nz/act/public/1986/0120/latest/link.aspx?id=LMS223673.

Topics:
Money and consumer rights > Taxes
Housing and property > Renting
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“Rules for using unused excess amounts when selling your entire residential property portfolio”

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“Rules for using leftover tax deductions when you sell a rental property”

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

EL 6Choosing to apply rules on property-by-property basis

  1. For the purposes of section EL 4, and despite the references there and in the definition of residential income in section EL 3 to residential portfolios, a person may choose to determine the amount of the deduction that may be allocated for an income year under section EL 4(2) in relation to a single property (property A), whether or not—

  2. they own residential rental properties other than property A:
    1. those other properties are included in a residential portfolio.

      1. For the purposes of section EL 4(3), both the income derived by the person and the expenditure or loss to which the deduction relates must relate solely to property A and to no other property of the person.

      2. An excess amount arising under section EL 4(3) in relation to property A is—

      3. suspended as a deduction for the income year; and
        1. carried forward to a later income year in which the person derives residential income from property A; and
          1. added to the amount of the deduction for expenditure or loss referred to in section EL 4(1) for the later income year.

            1. A person makes an election under subsection (1) by taking a tax position on that basis in their return of income for the income year in which the property becomes their residential rental property.

            2. The election remains in effect for income years in which the person continues to take the tax position but if the person changes their tax position, property A becomes a property included in a residential portfolio.

            3. For the purposes of subsection (4), for residential rental property held at the start of the 2019–20 income year, the person must make the election referred to in subsection (1) in the return of income for that income year.

            Notes
            • Section EL 6: 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).