When you borrow from a bank, they’ll suggest a loan structure that’s easy for them. Fair enough — that’s their job. But the structure that suits the bank’s systems isn’t always the structure that maximises your tax deductions or minimises your accounting costs over the life of the loan.
You might save a couple of hundred dollars in bank fees today. But what could that decision cost you over 25 years? Quite often, a lot more than the conversation with your accountant would have.
Get the loan structure right at the start, and you can spend the next two decades collecting tax deductions you’d otherwise miss — without paying any more interest.
Here’s how we think about it.
Put the lending where it earns its keep
The principle is simple: lending should sit against the asset that’s earning income. Interest on a loan used to buy a rental property is generally fully deductible against your rental income. Interest on the mortgage on your own home generally isn’t (with the small exception of a home office claim).
Quick context — the rules on rental interest deductibility have had a wild few years. They were limited from 2021, then phased back at 80% in the 2025 income year, and as of 1 April 2025, 100% deductibility is back for residential rentals. So getting the structure right now matters more than it has in years.
This becomes especially important in one very common situation: you’re buying a new home and keeping the old one as a rental. The way you structure the lending at that moment can shape the next 20 years of your tax position. Get it right, and you’ve maximised your deductible interest. Get it wrong, and you’re stuck with a pile of non-deductible debt against the new home and minimal deductible debt against the rental — exactly backwards.
The decisions you make in the first 60 days of an ownership change can set up — or sabotage — your tax position for the next two decades.
The top-up trap (and how to avoid it)
Here’s a scenario we see all the time. You’ve got an existing mortgage on a rental property — fully deductible. You need to draw down some extra money for something private: a renovation on your own home, a new car, a family holiday, a deposit on the next property purchase.
The bank says: “Easy, we’ll just top up the rental loan.”
Easy for them. Expensive for you. Once you mix deductible and non-deductible borrowing in the same loan, your accountant has to calculate the deductible percentage every year — for the entire remaining life of that loan. And that percentage doesn’t change as you pay down the balance. It just sits there, locked in, costing you a fraction of your interest deduction every single year.
The smarter move: separate loans, separate purposes
Take out a separate loan for the private spending. Keep the rental loan clean and 100% deductible. This gives you two big advantages:
- You can structure each loan differently — pay down the private (non-deductible) loan as fast as possible, and keep the rental loan on interest-only to maximise your deduction for as long as the strategy makes sense.
- No annual deductibility apportionment, no creeping accounting complexity, no slow erosion of your tax position.
It’s the same total borrowing. The same interest rate. Just structured smarter — and the difference compounds every single year.
Holding steady? Or building a portfolio?
If you’re focused on protecting what you’ve built: loan structuring is one of those quiet wins where doing it right at the start means cleaner records, simpler returns, and predictable deductions for years to come. No mystery percentages. No nasty surprises. Just a tidy, well-organised setup.
If you’re growing a portfolio or expanding the business: loan structure becomes genuinely strategic. The right setup frees up cash flow to fund the next purchase, maximises your after-tax return on each property, and gives you flexibility to restructure as your portfolio grows. The wrong setup quietly caps how fast you can scale.
Either way, the conversation is worth having before you sign — not after.
When to pick up the phone
If you’re about to do any of the following, talk to us first:
- Buying a new home and keeping the existing home as a rental.
- Buying a new rental property — first or fifth.
- Topping up an existing loan, especially one tied to a rental.
- Refinancing or restructuring lending across multiple properties.
- Borrowing to expand or invest in your business.
Bank conversations move fast, and the pressure to just sign the easy structure is real. A 20-minute chat with us beforehand can save you thousands over the life of the loan — and often the bank will happily accommodate the structure we recommend, once you ask.
The bottom line
Loan structuring isn’t about doing anything clever or aggressive. It’s about three simple principles, applied consistently:
1. Put the borrowing against the income-earning asset, not your home.
2. Never mix deductible and non-deductible debt in the same loan.
3. Get the structure right at the start, because retrofitting is messy and expensive.
A small amount of advice at the right moment is one of the highest-return decisions you can make as a property owner.
If you’re about to borrow — for a new property, a top-up, a business expansion, or a restructure — give us a call before you sign. No jargon, no upselling, just straight talk about how to set things up so they work for you over the long haul. Get in touch with the UHY Haines Norton team in Henderson or Kumeu — we walk this journey together. You can also reach out to the author, Erin Gibson, via email at erin.gibson@uhyhn.co.nz for more information.
Note: Special rules apply where a rental is a mixed-use asset (rented for part of the year, used by the family for other parts). The deductible portion needs to be calculated under the mixed-use asset rules. We’ll walk you through how that works for your specific situation.
