The bright-line test for residential property

Sell within two years of buying and the profit may be taxable. Here is how the dates work, and what the main-home exclusion does.

Current period

2 years for property sold from 1 July 2024

Bright-line start

Date title transfer is registered with LINZ (generally settlement)

Bright-line end

The sale agreement date

Off the plan

Starts at the agreement date, not settlement

Main-home exclusion

Applies when criteria are met

What triggers the test

For a property sold on or after 1 July 2024, the bright-line test applies when the period between the bright-line start date and the bright-line end date is two years or less. For a standard purchase, the start date is the date the transfer of the property is registered to the buyer with Land Information New Zealand, generally the settlement date. The end date is the date the binding sale and purchase agreement is entered into. If that period is two years or less, the sale falls within the bright-line period and the profit may be taxable. Inland Revenue, bright-line test (opens in a new tab) Inland Revenue, bright-line test dates (opens in a new tab)

The two dates are not the dates a person might think of as the purchase and sale: the start is a registration date and the end is an agreement date. For a standard purchase, the start date is not the offer date or the contract date; it is the date the title transfer is registered with LINZ. The end date is not the settlement date of the sale; it is the date the agreement becomes binding. This distinction matters most for off-the-plan purchases, where the agreement date is earlier than the settlement date by the length of the build. Inland Revenue, bright-line test dates (opens in a new tab)

Off the plan starts the clock earlier

For a property acquired off the plan, the bright-line start date is the date the sale and purchase agreement was entered into, not settlement. Because the clock starts before the build is finished, part or all of the 2-year period can pass before the buyer takes title. Inland Revenue, bright-line test dates (opens in a new tab)

When the test does not apply

The bright-line test does not apply when the property has been the seller's main home and certain criteria about use and occupation are met. Business premises and farmland are also excluded. The test also does not apply to property inherited from a deceased estate. Sales before 1 July 2024 use the older five-year and ten-year periods, depending on when the property was acquired. Inland Revenue, bright-line test (opens in a new tab)

The main-home exclusion is not automatic. It requires that more than 50% of the property's area was used as the seller's main home, and that the seller lived there as their main home for more than 50% of the bright-line period. A property occupied briefly before being rented out may not qualify. Inland Revenue's property tax decision tool helps establish whether the test applies; a taxable sale is reported on form IR833. Inland Revenue, bright-line test exclusions (opens in a new tab)

What happens when the test applies

When the bright-line test applies, the profit on the sale is treated as income and is included in the seller's income tax return for that year. How the profit is calculated, what expenses can be deducted, and how the result interacts with other property income are separate questions answered in Inland Revenue's guide to the bright-line test, which this guide names rather than reproduces.

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