The bright-line test is New Zealand’s closest equivalent to a capital gains tax on residential property. If you sell a residential property within the bright-line period, the profit is taxable as income — regardless of your intent when buying. Understanding the current rules and exemptions is critical for any property owner.
As of 1 July 2024, the bright-line period is 2 years for all residential property (existing and new builds). If you buy and sell within 2 years, the gain is taxable as income at your marginal rate. Main exemptions: the main home exclusion (property is your principal residence), and inherited property. The 2-year period applies to every sale from 1 July 2024, whenever you bought; the older 5- and 10-year periods only matter for sales before then.
What Is the Bright-Line Test?
The bright-line test was introduced in 2015 to tax gains on residential property sold “too quickly” — even if the seller did not buy with the intent to sell at a profit (which was previously required for property gains to be taxable under the “land dealer” rules).
The test is “bright-line” because it relies on objective date thresholds rather than subjective intent — if you sell within the period, the gain is taxable. Full stop.
Current Bright-Line Period (from 1 July 2024)
2 years for all residential property — both existing properties and new builds.
This is a significant rollback from the prior 10-year rule (existing properties) and 5-year rule (new builds) that applied from March 2021 to 1 July 2024.
| Which sales | Government | Bright-line period |
|---|---|---|
| Property acquired before 1 Oct 2015 | No bright-line | |
| Acquired 1 Oct 2015 to 28 Mar 2018, sold before 1 Jul 2024 | National | 2 years |
| Acquired 29 Mar 2018 to 26 Mar 2021, sold before 1 Jul 2024 | Labour | 5 years |
| Acquired on or after 27 Mar 2021, sold before 1 Jul 2024 | Labour | 10 years (existing) / 5 years (qualifying new builds) |
| Sold on or after 1 Jul 2024, whenever acquired | National | 2 years (all residential property) |
For sales before 1 July 2024 the acquisition date decided the period; for sales from 1 July 2024 only the 2-year period applies.
How the Bright-Line Period Is Measured
The bright-line period is measured from the date the title is registered (settlement/transfer date) to the date you enter a binding sale and purchase agreement to sell.
Note: It is not from the date of purchase contract to the date of sale contract — it is from settlement to when the sale agreement is signed.
Example:
- Settlement date (purchase): 15 March 2024
- Sale and purchase agreement signed: 20 February 2026
- Days between: approximately 23 months — within 2 years → taxable
If the sale agreement was signed on 16 March 2026 (2 years and 1 day after settlement): outside the bright-line → not taxable under bright-line (though other rules may still apply).
What Is Taxable?
If the bright-line applies, the taxable income is:
Sale price − Purchase price − Allowable costs
Allowable costs that reduce the taxable gain include:
- Purchase price of the property
- Legal fees at purchase and sale
- Real estate agent commission
- Capital improvements made to the property (but not repairs or maintenance)
- Depreciation previously claimed on chattels (added back)
The resulting net gain is added to your other income and taxed at your marginal rate.
Example:
- Purchase price: $750,000
- Sale price: $850,000
- Legal fees (purchase + sale): $4,000
- Agent commission: $15,000
- Capital improvements: $10,000
- Taxable gain: $850,000 − $750,000 − $29,000 = $71,000
- Tax at 33%: approximately $23,430
Main Home Exclusion
The most important exclusion. If the property was your main home, the bright-line test does not apply to its sale. For sales from 1 July 2024 you can claim it if you:
- used more than 50% of the property’s area as your main home (including the yard, gardens and garage), and
- 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 and the whole profit is taxable under the bright-line test. For example, if you live in 40% of a property and rent out the other 60% as a flat, you can’t use the exclusion. (Properties sold before 1 July 2024 had different criteria depending on when they were acquired.)
Limits: the exclusion doesn’t apply if you have a regular pattern of buying and selling (or building and selling) your main home, or if you’ve already used it twice in the 2 years immediately before the sale.
Other Exemptions
| Exemption | Details |
|---|---|
| Inherited property | Property inherited on death is exempt from bright-line |
| Relationship property transfers | Rollover relief: the transfer isn’t taxed and the new owner takes over the original bright-line start date |
| Executor/trustee sales | Certain estate sales exempt |
| Farmland | Farmland is generally excluded |
| Business premises | Commercial property not covered by residential bright-line |
Planning Considerations
Selling soon after 2 years: the end date is the day you sign the sale agreement, so leave a buffer rather than signing right on the 2-year anniversary of settlement.
Selling to a related party: IRD looks closely at sales between family members below market value. Make sure the price reflects market value.
Long-term investors: for a buy-and-hold investor, the bright-line test rarely applies. Gains can still be taxable outside the bright-line period if you bought with the intention of reselling, or you’re in the business of dealing in, developing or building on land.
New Builds — Historic 5-Year Rule
Properties classified as new builds were subject to a 5-year bright-line period (not 10) under the previous Labour government rules (March 2021 – June 2024). From 1 July 2024, new builds also moved to the 2-year rule. That applies to every sale from 1 July 2024, including new builds bought between March 2021 and June 2024: IRD says the change means you no longer have to separate out new builds from other properties.
How to Declare Bright-Line Income
If the bright-line test applies to your property sale, you must:
- File an IR3 for the year the sale occurred
- Include the taxable gain as income on a separate schedule (bright-line income section)
- Pay tax on the gain at your marginal rate
IRD tracks property transactions through Land Information New Zealand (LINZ) data. They routinely check sales against purchase dates and follow up on potential bright-line breaches. Do not assume they will not notice.
Frequently Asked Questions
I bought in 2022 during the 10-year rule. Does it still apply to my property?
No, not if you sell on or after 1 July 2024. The period depends on when you sell: every sale from that date uses the 2-year bright-line, including property bought under the 10-year rule. So a property bought in 2022 and sold in 2025 or later is outside the bright-line test (other rules, such as buying with the intention of resale, can still apply). The 10-year period only applied to sales before 1 July 2024.
Does the bright-line apply to my holiday home?
Yes, unless you use it as your main home. A holiday home used only part of the year is not your main home, so the main home exemption does not apply and the bright-line can trigger a tax bill if sold within the period.
Does the bright-line apply to commercial property?
No. The bright-line test applies to residential land only. Commercial properties, industrial properties, and bare land are not covered (though other rules like the dealer/developer rules may still apply).
Can I offset a bright-line gain with losses from another property?
Bright-line gains are treated as residential land income. They can be offset by any ring-fenced rental property losses carried forward. Capital losses from other investments cannot offset bright-line income.
What if I renovate and sell — is that bright-line or dealer activity?
If you regularly buy, improve, and sell properties, IRD may classify you as a property dealer regardless of the bright-line. Dealer income is taxable on all property sales, not just those within the bright-line period.