Reducing Tax: Writing Off Mortgage Interest as a Small Business Owner
Running a small business comes with a lot of costs (don’t we know it!) but there are also some great tax perks that can help you out. One of those is being able to write off part of your home loan interest as a business expense if you’re working from home…
Can You Claim Home Loan Interest as a Business Expense?
If you run your business from home (even in part), you might be able to claim a portion of your mortgage interest as a tax deduction.
How much you can claim depends on how much of your home is used for work. Generally, it’s based on the percentage of your house that’s set aside as your office or workspace.
Even if you’re just working at your dining table and keeping business files or equipment in your house or garage, you can still claim. (And while government rules can change, this has been allowed for a long time, with no signs of it being removed.)
Figuring Out The Mortgage Interest Deduction
To work out how much of your mortgage interest you can claim, think about:
The total size of your house (in square meters).
The portion of your home you use only for business (like a dedicated office space).
The total mortgage interest you’ve paid.
Any other costs for running your workspace (power, internet, rates, insurance).
For example, if your home office takes up 10% of your house, you could claim 10% of your mortgage interest as a business expense.
Why Claiming Mortgage Interest is a Win
Lower Taxable Income: The higher your expenses are, the lower your taxable income is - and the less tax you have to pay!
Better Cash Flow: The money you save in tax can go straight back into growing your business.
Extra Deductions: You may also be able to claim part of your power, internet, council rates and home insurance costs as business expenses.
Other Tax Deductions for Home-Based Businesses
Aside from mortgage interest, you could also claim:
Depreciation on office furniture and gear (desks, chairs, laptops, printers).
Business-related phone and internet expenses.
Power and heating for your home office.
A portion of your council rates and insurance for the business-use part of your home.
How to Make the Most of These Tax Benefits
Chat with a Tax Pro: A good accountant can help you claim everything you’re entitled to (and keep you on the right side of the law!)
Keep Records: Hold onto receipts and records of all expenses related to your home office and business.
Plan for the Bigger Picture: Understand how deductions impact your overall finances so you don’t run into issues down the track.
Final Thoughts
If you’re a small business owner and you work from home - even just some of the time - claiming your mortgage interest can save you a decent chunk of money! Just make sure to keep good records, and keep up to date on the rules.
(Make sure you chat with a tax professional too - they can help you find other tax perks you might not even know about.)
If you’re worried that claiming extra expenses might lower your business income and mess with your chances of getting a home loan, don’t stress – although claiming these items as an expense does lower your net profit, most banks will ‘add back’ these expenses to your net profit when they do a mortgage lending assessment.
We say ‘most’, because not all banks accommodate self-employed people in this way. Not to worry though, we have your back – as mortgage brokers, we work with a wide variety of lenders. And we’ve been helping hard-working Kiwi business owners get home loans for over 20 years – it’s one of our fave things to do!
Our blog is not intended to be taken as personal or business advice and is for informational purposes only.
Contact our mortgage broker to ensure it is suitable for your circumstances, and always contact an accountant or tax specialist before acting on any information concerning your taxes.