Bright-Line Test

Updated for 2026/27 IRD rates and thresholds

Which bright-line period applies to your property

When you acquired the propertyBright-line period
Before 1 October 2015No bright-line test
1 October 2015 – 28 March 20182 years
29 March 2018 – 26 March 20215 years
27 March 2021 onwards — qualifying new build5 years
27 March 2021 onwards — other residential property, sold before 1 July 202410 years
Any property sold on or after 27 March 2021, tested from 1 July 20242 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

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.

Other exemptions and deferrals worth knowing

If the bright-line test does apply

  1. The gain is taxable as income in the year of disposal, at your marginal rate — up to 39%.
  2. You can deduct the acquisition and disposal costs: legal fees, agent commission, marketing, and capital improvements that were not already deducted.
  3. Report it in the property section of your IR3 return, with the start and end dates and the calculation of the gain.
  4. 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.
  5. 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:

  1. 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.
  2. On sale inside two years: the gain is taxable income at your marginal rate, up to 39%.
  3. 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

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