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Income Tax Act 2007

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

EL 7: When property A sold

You could also call this:

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

When you sell a property that you’ve chosen to apply special tax rules to, different things can happen:

If you make money from selling the property under land sales rules, you can use any leftover deductions related to that property right away. But this doesn’t apply to leftover deductions that came from another property.

If you sell the property but don’t make money under land sales rules, any leftover deductions:

  • Can still be used in future years when you earn money from renting houses
  • Can be moved to another rental property you own

It doesn’t matter if you’re applying these rules to all your properties together or to each property separately.

If you had moved leftover deductions from another property to this one, and you didn’t make money when you sold that other property, then:

  • The amount you can use right away is reduced by how much you moved from the other property
  • The part you can’t use right away can be moved to another rental property for future use

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View the original legislation for this page at https://legislation.govt.nz/act/public/1986/0120/latest/link.aspx?id=LMS223675.

Topics:
Money and consumer rights > Taxes
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EL 6: Choosing to apply rules on property-by-property basis, or

“Choosing to manage rental property expenses individually”

Next

EL 8: Treatment of previously transferred amounts on fully-taxed disposals, or

“Handling transferred money when selling fully-taxed items”

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

EL 7When property A sold

  1. This section applies for an income year when a person—

  2. has chosen to apply the rules in this subpart on a property-by-property basis under section EL 6 to a particular property (property A); and
    1. disposes of property A, whether or not it is residential rental property for the person at the time of the disposal; and
      1. has an unused excess amount under section EL 4(3) relating to property A.

        1. If the person derives income under the land sales provisions from the disposal of property A, any unused excess amount relating to property A is released from the application of the limited allocation rule in section EL 4(2) for the income year. However, this subsection does not apply in relation to an unused excess amount transferred from another property, see subsections (5) and (6).

        2. If the person disposes of property A but does not derive income under the land sales provisions from the disposal, any unused excess amount relating to property A—

        3. is an amount to which section EL 4(3) continues to apply for income years in which the person derives residential income; and
          1. is treated as a deduction referred to in section EL 4(1) that is transferred to another residential rental property for an income year in which the person derives residential income.

            1. For the purposes of subsection (3)(b), it does not matter whether the allocation of the transferred amount is made on a portfolio basis or on a property-by-property basis.

            2. Subsection (6) applies in relation to a disposal described in subsection (2) when—

            3. an unused excess amount was transferred to property A from another of the person’s properties; and
              1. the person did not derive income from the disposal of the other property.

                1. An unused excess amount that would otherwise be released under subsection (2) is—

                2. reduced by an amount equal to the total unused excess amount transferred from the other property; and
                  1. to the extent of the amount transferred, is treated as a deduction referred to in section EL 4(1) that is transferred to another residential rental property for an income year in which the person derives residential income.

                    Notes
                    • Section EL 7: 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).
                    • Section EL 7(2): amended (with effect on 1 April 2019), on , by section 109(1)(a) of the Taxation (KiwiSaver, Student Loans, and Remedial Matters) Act 2020 (2020 No 5).
                    • Section EL 7(2): amended (with effect on 1 April 2019), on , by section 109(1)(b) of the Taxation (KiwiSaver, Student Loans, and Remedial Matters) Act 2020 (2020 No 5).
                    • Section EL 7(5) heading: inserted (with effect on 1 April 2019), on , by section 109(2) of the Taxation (KiwiSaver, Student Loans, and Remedial Matters) Act 2020 (2020 No 5).
                    • Section EL 7(5): inserted (with effect on 1 April 2019), on , by section 109(2) of the Taxation (KiwiSaver, Student Loans, and Remedial Matters) Act 2020 (2020 No 5).
                    • Section EL 7(6) heading: inserted (with effect on 1 April 2019), on , by section 109(2) of the Taxation (KiwiSaver, Student Loans, and Remedial Matters) Act 2020 (2020 No 5).
                    • Section EL 7(6): inserted (with effect on 1 April 2019), on , by section 109(2) of the Taxation (KiwiSaver, Student Loans, and Remedial Matters) Act 2020 (2020 No 5).