Bright-Line Test
Updated for 2026/27 IRD rates and thresholds
Which bright-line period applies to your property
| When you acquired the property | Bright-line period |
|---|---|
| Before 1 October 2015 | No bright-line test |
| 1 October 2015 – 28 March 2018 | 2 years |
| 29 March 2018 – 26 March 2021 | 5 years |
| 27 March 2021 onwards — qualifying new build | 5 years |
| 27 March 2021 onwards — other residential property, sold before 1 July 2024 | 10 years |
| Any property sold on or after 27 March 2021, tested from 1 July 2024 | 2 years |
The rule that applies to a sale on or after 1 July 2024 is simple: your bright-line end date must fall within 2 years of your bright-line start date. Everything else is history — the old 5 and 10-year periods only apply to disposals before that date.
Start and end dates, precisely
- Start date for a purchase: the date you acquired the property — usually the settlement date of the purchase, or the date the property was first registered in your name.
- Start date for a subdivided or built property: different rules apply, and the start date can be the date the land was acquired rather than when the build finished.
- End date: for most sales, the date the buyer takes possession or the settlement date — for a standard sale and purchase agreement that is usually settlement.
- Off-the-plan and long settlements: check the agreement, because the start date can precede settlement by a long way in a new development.
Worked example: bought with settlement on 15 March 2023, sold with settlement on 20 February 2026. The gap is 2 years and 11 months — outside the 2-year window, so the bright-line test does not apply even though the property was owned for nearly three years.
The main home exemption
Your main home is generally excluded from the bright-line test, but the exclusion is not unlimited. The test looks at the main home percentage — the proportion of the ownership period you actually lived in it. If you owned the property for 700 days and lived in it for 500, roughly 71% of the gain may be exempt and the balance taxable.
- Two homes at once: for the transition period when you move, the main home exemption can only apply to one of them, and there are timing rules (generally 12 months of overlap is not permitted to produce two exemptions).
- Short stays overseas can count as still living in New Zealand for this purpose, up to a limit.
- Boarders and flatmates do not normally break the exemption; renting the whole house out does.
Other exemptions and deferrals worth knowing
- Rollover relief: transfers on a relationship breakdown, to a family trust, or on the death of the owner can be rolled over so the bright-line clock is not restarted.
- Inherited property: the bright-line date generally carries over from the deceased.
- Compulsory acquisitions and certain Treaty of Waitangi settlements have their own rules.
- Farm land, business premises and non-residential land are outside the bright-line test (though other rules, including the intention test, can still apply).
If the bright-line test does apply
- The gain is taxable as income in the year of disposal, at your marginal rate — up to 39%.
- You can deduct the acquisition and disposal costs: legal fees, agent commission, marketing, and capital improvements that were not already deducted.
- Report it in the property section of your IR3 return, with the start and end dates and the calculation of the gain.
- Filing is required even if you make a loss — the loss is usually deductible against other income if the property was acquired with a purpose of disposal.
- Interest and penalties follow if the gain is not declared, and IRD now receives property transfer data from LINZ and the banks.
If you are within two years and unsure, get advice before signing: the difference between an exempt and a taxable sale on a $100,000 gain is up to $39,000 of tax.
Deep dive — 2026 update
How bright-line, interest deductibility and the ring-fencing rules fit together
These three rules are usually discussed separately, but an investor selling inside two years meets all of them at once:
- During ownership: interest on the mortgage is deductible (fully restored from 1 April 2025), but a residential rental loss is ring-fenced and cannot offset salary.
- On sale inside two years: the gain is taxable income at your marginal rate, up to 39%.
- After sale: accumulated ring-fenced losses are released against the taxable gain, and any balance can be used against other income in that year.
Worked example: a $700,000 property bought in April 2024 and sold in November 2026 (outside the 2-year window), with a $120,000 gain and $30,000 of ring-fenced losses. Because the sale is outside the bright-line window, the gain is not taxed; the $30,000 of ring-fenced losses stays available for future rental income. Had the sale settled in March 2026 instead, the gain would have been taxable — and the ring-fenced losses released against it.
Evidence to keep from day one
- The signed sale and purchase agreement for both the purchase and the sale, with settlement dates.
- Legal invoices and agent commission statements for both ends of the transaction.
- Invoices for capital improvements, separated from repairs and maintenance.
- A record of the days the property was your main home versus rented out, if the exemption is being apportioned.
- Any trust deed or relationship property agreement, if a rollover might apply.
Keep these for at least seven years after the sale. IRD's property data-matching with LINZ means an undeclared bright-line sale is now more likely to be detected than missed — and the penalties are materially worse than the tax.
Three common misunderstandings
- "I held it over two years, so I'm safe." The test is based on the bright-line end date versus start date, with specific definitions of each. A long settlement period can shorten or lengthen your exposure.
- "My main home is always exempt." Only while it is actually your main home. Rent it out for two years in the middle and the exemption is apportioned.
- "The bright-line test is a capital gains tax." It is not — but the intention test, the land dealing rules and the 10-year rule for land acquired for development purposes all sit alongside it, and one of them can still tax a gain the bright-line test does not reach.