The bright-line test taxes some gains on residential property. If you sell a residential property within 2 years of buying it, any profit is taxable, unless an exclusion or rollover relief applies. The 2-year period applies to property sold on or after 1 July 2024.
The bright-line period at a glance
| Rule | |
|---|---|
| Bright-line period | 2 years (property sold on or after 1 July 2024) |
| Starts | When the title transfers to you, generally the settlement date |
| Ends | When you sign a binding sale and purchase agreement to sell |
| What's taxed | The profit on the sale |
| Main exclusions | Your main home, business premises, farmland, inherited property |
| Overseas property | Also applies to NZ tax residents who buy and sell residential property overseas |
How the dates work
For a standard purchase, the clock starts on the day the property's title is transferred to you. That's usually settlement day, not the day you signed to buy.
For a standard sale, the clock stops when you enter a binding sale and purchase agreement. That's usually earlier than the day the sale settles.
So the question is: did you sign to sell within 2 years of settling your purchase? If yes, the bright-line test applies.
Different rules apply to other kinds of purchases and sales, for example buying off the plan or giving a property away. Inland Revenue's property tax decision tool walks through these cases.
Example
You settle on a rental property on 1 March 2025. On 1 February 2027 you sign an unconditional agreement to sell it. That's within 2 years, so the profit is taxable under the bright-line test. If you'd waited and signed in April 2027, it wouldn't be.
The main home exclusion
Generally, the bright-line test doesn't apply when you sell a property that's been your main home. To use the exclusion, you need to meet both of these:
- you used more than 50% of the property's area as your main home, including the yard, gardens and garage
- you lived in it as your main home for more than 50% of the bright-line period
If either is 50% or less, the exclusion doesn't apply. Inland Revenue's example: if you live in 40% of a property and rent out the other 60% as a flat, you can't use it.
You can only have one main home. If you have more than one property, it's the one you have the greatest connection to. Inland Revenue looks at where you spend your time, where your family lives, where your belongings are, and your social and work ties.
When the main home exclusion doesn't work
- You have a regular pattern of buying and selling, or building and selling, your main home.
- You've already used the main home exclusion twice in the 2 years before the sale.
If you built the home, you can ignore the construction period when working out whether you qualify.
Other exclusions
- Property used mainly as business premises.
- Farmland, or land that could be used as farmland.
- Property you inherited, or sold as the executor or administrator of an estate.
- Some transfers between associated people qualify for full or partial rollover relief.
Rollover relief doesn't cover parents helping their children buy a first home. If parents own a property and gift it to their children within the bright-line period, the transfer is treated as a sale at market value.
How the profit is taxed
People often call it a capital gains tax. Inland Revenue treats a bright-line profit as income. You show it in your income tax return, so it's taxed at your income tax rates. A company or trust pays at its own rate, covered in the company tax post.
- Fill in a Bright-line property sale information form (IR833) for each bright-line sale.
- Put your share of the net profit in the "Net bright-line profit" box of your return.
- If you made a loss, don't put it in your return. Keep your own record of bright-line losses.
Inland Revenue may already know about the sale. It can show the property in myIR and pre-fill an IR833 in your return. If the sale is excluded, you choose the reason from a drop-down, or let Inland Revenue know during the year.
If you're an offshore person under the residential land withholding tax rules, your conveyancer deducts tax at the time of sale, unless you hold a certificate of exemption.
Selling after 2 years
The bright-line test doesn't apply once the period has passed. Other property rules still can, for example if you bought the property intending to sell it, if you have a pattern of buying and selling, or if you or an associated person are in the business of property dealing, developing or building.
Property sold before 1 July 2024
Older sales used longer periods: 5 years for property acquired between 29 March 2018 and 26 March 2021, and 10 years (5 for qualifying new builds) for property acquired on or after 27 March 2021. The main home rules were different too. Those rules matter now only for sales made before 1 July 2024.
Common questions
What is the bright-line period in NZ?
2 years, for residential property sold on or after 1 July 2024. It runs from when the title transfers to you to when you sign a binding agreement to sell.
Does the bright-line test apply to my family home?
Generally not, if you used more than 50% of it as your main home for more than 50% of the bright-line period. There are limits if you buy and sell homes regularly.
Does the bright-line test apply to inherited property?
No. It doesn't apply if you inherited the property or you're selling it as executor or administrator of the estate.
How much tax will I pay on a bright-line sale?
The profit is added to your income and taxed at your usual rates. For a sole owner, that's somewhere between 10.5% and 39% depending on your other income. Talk to an accountant for your situation.
Sources: Inland Revenue, The bright-line test, Exclusions to the bright-line test, Property sold before 1 July 2024 and Completing your income tax return and IR833. Checked October 2026. General information, not tax advice.
Work it outMortgage calculatorRepayments weekly, fortnightly or monthly, total interest, and what extra repayments save.Open the free tool →