Mixed-Use Assets: Tax Rules for Holiday Homes, Boats, and Aircraft in NZ

If you own a holiday home, boat, or aircraft that you use personally some of the time and rent out (or try to rent out) at other times, it is a mixed-use asset under New Zealand tax law. The mixed-use asset rules — found in subpart DG of the Income Tax Act 2007 — determine how much of your expenses you can deduct, and the answer depends heavily on how many days the asset is actually used (by you, by tenants, or by no one).

The rules are surprisingly prescriptive, and getting the apportionment wrong — or claiming 100% of expenses when you used the bach for two weeks at Christmas — is a common IRD audit trigger.

What Counts as a Mixed-Use Asset

An asset falls under the mixed-use rules if it meets all three of these criteria in an income year:

1. The asset is used both personally by you (or an associated person) and for income-earning purposes — e.g., you use the holiday home yourself, and also rent it out on Bookabach or Airbnb

2. The asset is unused (neither personal use nor income-earning) for 62 days or more during the year — this is the key threshold. If the asset is in use (personal or rental) almost every day, the standard rental property rules apply instead. If it sits empty for significant periods — as most holiday homes do between guest bookings and family use — the mixed-use rules apply.

3. The asset is land (including buildings), a boat, or an aircraft — the rules are intentionally limited to these three categories, and a boat or aircraft only counts if it cost (or was worth on acquisition) $50,000 or more. Residential property whose only income-earning use is long-term rental is excluded. A car used partly for Uber and partly for personal transport is not a mixed-use asset (different rules apply).

The Apportionment Formula

Once the mixed-use rules apply, your deductible expenses are calculated based on actual days of use, not floor area or some other proxy. The formula:

Deductible percentage = Income-earning days ÷ (Income-earning days + counted days), where counted days are days the asset is in use that are not income-earning days (personal use, and rent below 80% of market value)

Days when the asset is unused (empty, not generating income, not being used by you) are ignored in the numerator and denominator — they do not reduce your deduction. The days you use it personally, however, do reduce the deduction proportionally.

Example: Over the year, your holiday home is:

• Rented to paying guests: 60 days
• Used by your family: 30 days
• Empty (unused): 275 days

Total days: 365. Total used days: 60 + 30 = 90 days. Of those 90 days, 60 are income-earning.

Deductible percentage = 60 ÷ (60 + 30) = 66.7% of expenses are deductible.

This is significantly better than a flat 60/365 = 16.4% approach. The mixed-use rules specifically exclude unused days from the denominator, which recognises that a holiday home’s natural state is “empty” and you should not be penalised for that.

If Income Is Very Low Relative to the Asset’s Value

There is no 15% rule. The only quarantine is in section DG 16: if the income from the asset is less than 2% of its cost or its most recent capital or annual value (whichever is later), deductions are limited to the income earned, and the excess is carried forward to offset future income from the same asset. Above that yield, the apportioned deductions are allowed as calculated.

What Expenses Can Be Apportioned

The mixed-use rules divide expenses into categories:

Fully deductible regardless of the apportionment:

• Advertising and listing fees (trade me, Bookabach, Airbnb host fees)
• Commission paid to property managers on actual bookings
• Costs directly attributable to a specific rental period (e.g., cleaning immediately before a guest’s stay, welcome-pack supplies)

Apportioned based on the days formula:

• Mortgage interest (subject to the interest deductibility rules — see below)
• Rates and insurance
• Repairs and maintenance (general upkeep of the property)
• Utilities (power, internet, water) that are not separately metered for rental periods
• Depreciation on chattels (furniture, appliances, linen)
• Body corporate fees (for apartments)

Not deductible at all (private in nature):

• Expenses for periods when the asset is used personally — the personal-use portion of apportioned expenses is non-deductible
• Capital improvements (these are added to the asset’s cost base, not expensed)

Interest Deductibility for Mixed-Use Land

The interest limitation rules ended on 31 March 2025, so from 2025-26 interest on residential property is fully deductible. For a mixed-use asset the interest is simply apportioned with the other expenses (section DG 9): the personal-use portion remains non-deductible.

Rent Below Market Rate to Family or Friends

Use by you or an associated person is private use whether or not they pay you, and rent that is less than 80% of the market value amount also counts as private use. This is a common trap: you charge your cousin $200 a night when market rate is $400 a night, thinking the property is “rented.” Those days reduce your deductible percentage.

To count as an income-earning day, the rental must bring in at least 80% of the market value amount (the price freely offered to a member of the public at arm’s length) — typically a stranger booking through a public platform at the going rate.

The $4,000 Opt-Out Election (Section DG 21)

If your gross income from the income-earning use of the asset is less than $4,000 for the income year, section DG 21 of the Income Tax Act 2007 lets you elect to treat the asset as outside the tax system entirely for that year:

• You do not return the rental/charter income as taxable income
• You cannot claim any deductions (apportioned or otherwise) for that year
• The election is made year by year — a year where you cross $4,000 of gross income simply falls back into the standard mixed-use apportionment rules described above

This is a genuine simplification, not just a rounding concession: for an owner who rents out a bach only occasionally and has modest gross rental income, electing out avoids the apportionment calculation, the use-diary record-keeping, and the mixed-use asset return altogether. It’s most useful for owners whose income is close to break-even after expenses anyway, since opting in to the full apportionment regime in that scenario often produces little or no net tax benefit (and the quarantine rule can limit deductions anyway when income is under 2% of the asset’s value).

Check the gross income test each year — if a stronger rental year takes you to $4,000 or more, you’re back in the standard regime and need to track days and apportion expenses as normal.

Mixed-Use Assets and GST

If you are GST-registered and the mixed-use asset is used in your taxable activity, the GST apportionment follows a different set of rules than the income tax apportionment. The GST adjustment is based on the actual use of the asset over its life, compared to the intended use when you claimed the original input tax deduction. This is a separate calculation and a separate compliance obligation.

Most individual owners of a single holiday home used partly for short-stay rental are not GST-registered (the rental income is below the $60,000 registration threshold), so GST does not arise. However, if you own multiple short-stay properties and are GST-registered, obtain advice on the GST mixed-use adjustments — they are complex and fact-specific.

Record-Keeping

To support your apportionment, keep:

• A use diary or calendar showing each day the asset was used: by you personally, by paying guests, or unused (and available for rental)
• Booking records, invoices, and receipts for all rental income
• Listing screenshots showing the property was publicly available for rent during periods when it was not in personal use
• Invoices and receipts for all expenses, categorised by type (directly attributable, apportionable, private)
• For boats and aircraft, logbooks showing hours of personal use vs charter use, and location records

The IRD can request this evidence up to seven years after the relevant tax year.

A Common Scenario: The Family Bach

A family owns a bach in Coromandel. During the 2025-26 income year:

• Booked through Bookabach for paying guests: 45 nights
• Used by the family: 35 nights (two weeks at Christmas, Easter weekend, various weekends through the year)
• Empty the rest of the time: 285 nights

Total used nights = 80. Income-earning proportion = 45 ÷ 80 = 56.25%.

Annual expenses: rates $4,000, insurance $2,500, power $1,800, repairs $3,000, interest $15,000, bookabach fees $600, cleaning for guests $1,200, chattel depreciation $2,000.

• Directly attributable (listing fees + guest cleaning): $1,800 — fully deductible
• Apportionable pool: rates + insurance + power + repairs + interest + depreciation = $28,300
• Deductible portion of apportionable: $28,300 × 56.25% = $15,919
• Total deductions: $1,800 + $15,919 = $17,719

Gross rental income (45 nights × $250/night avg): $11,250.

The deductions ($17,719) exceed the income ($11,250). Whether the $6,469 excess is quarantined depends on the bach’s value: quarantine applies only if the income is less than 2% of its cost or latest capital value, i.e. if the bach is worth more than $562,500. If it is (likely for a Coromandel bach), the excess is carried forward to offset future income from the same asset, and cannot be offset against salary, business income, or other investment income.

When the Mixed-Use Rules Don’t Apply

If your holiday home is unused for fewer than 62 days — meaning it is in use (personal or rental) for more than 303 days — the standard rental property rules apply instead. This is unusual for holiday homes (most are empty far more often than that), but an urban apartment rented on Airbnb with high occupancy and minimal personal use could fall into standard rental property treatment, which has different deduction rules.

Conversely, if you use the asset only personally, you are not in the mixed-use regime — there is no income-earning activity, so no deductions are available. And if you use it only for income-earning (no personal use), standard business or rental property rules apply.

Sources

• IRD — Property rules and mixed-use assets
• IRD — Residential rental income
• NZ Legislation — Income Tax Act 2007, Subpart DG
• IRD — Mixed-use assets (incl. the $4,000 gross-income opt-out election)