The bright-line test explained: the 2-year rule for NZ property

The bright-line test taxes the profit on residential property you sell within a set period of getting it. For sales agreed on or after 1 July 2024 the period is 2 years, counted from the day title is registered to you to the day you sign a binding sale agreement. Your reasons for buying do not matter. If the sale is caught and no exclusion applies, the profit is added to your income and taxed at your marginal rate. New Zealand has no separate capital gains tax rate.

What the bright-line test is

Rules checked 10 November 2026. This is a guide, not tax advice; check with your accountant for your situation.

Inland Revenue's guide IR1229 (March 2026) describes it simply: the bright-line test "taxes profit made on the sale of residential property when it is sold within a certain period of time (bright-line period) and no exclusions or rollover relief apply."

The law is section CB 6A of the Income Tax Act 2007. Its core sentence says an amount from disposing of residential land is income "if the person's bright-line end date is within 2 years of their bright-line start date." Everything else in this guide is about how those two dates are found, and which sales are let off.

Three things set the bright-line test apart from New Zealand's older land tax rules:

• Intention is irrelevant. IR1229 says "Your intention or purpose for purchasing or selling the property is not relevant." A long-term buyer whose plans change is caught just like a quick flipper.
• It is a time test. Sell outside the period and the bright-line test does not apply, although the other land rules still can.
• It is not a separate tax. The profit is ordinary income, taxed at the same rates as your salary.

The test started on 1 October 2015 with a 2-year period, was stretched to 5 and then 10 years, and came back to 2 years from 1 July 2024. Our bright-line history guide covers the older periods.

The 2-year rule from 1 July 2024

For a standard purchase and sale, the bright-line period has a clear start and end:

Two points catch people out. The clock does not start when you sign to buy, and it does not stop when you settle the sale. It runs from your title registration to your sale agreement. Our guide to bright-line dates walks through timelines, including the awkward case of signing on the second anniversary.

Which rules apply depends on the sale date, not the purchase date. Any sale agreed on or after 1 July 2024 uses the 2-year test, however long ago you bought. IR1229's example is Mia: her bright-line start date was 5 January 2022 and she sold on 27 July 2024. Under the old rules she would have been inside a 10-year period, but because the sale was after 1 July 2024 and more than 2 years after the start date, the profit is not taxable under the bright-line test.

To find the first day a sale agreement would fall outside the period for your own property, use our bright-line end date finder.

Who and what it catches

The test applies to residential property. IR1229 says that includes:

• land with a house on it
• land the owner has an arrangement to build a house on
• land the owner can build a house on under the district plan rules.

So a bare section counts. IRD's example is Robert, who bought a residential section in June 2024 to build a family home, changed his plans and sold in August 2025. With no house on the land, the bright-line test still applied.

Residential property does not include farmland or land used predominantly as business premises. It does include short-stay accommodation that is not the owner's home.

As for who, the test applies to anyone who owns the property: individuals, co-owners, trusts and companies. It also applies to New Zealand tax residents who buy and sell residential property overseas. Co-owners are taxed on their own share of the profit; our guide to selling from overseas covers the withholding tax that can apply to offshore sellers.

Some common situations, under the 2-year test:

The bright-line test is also a backstop, not the first rule checked. Inland Revenue looks at the other land sale rules first, such as land bought with an intention of resale or by a dealer or developer. If one of those applies, it overrides the bright-line test and has no time limit. Our intention test guide explains that rule.

What is let off: exclusions and rollover relief

A sale inside the 2 years is still not taxed under the bright-line test if one of these applies:

• Main home. You used more than 50% of the land as your main home and lived there as your main home for more than 50% of the bright-line period. It is all or nothing, with limits if you have used it twice in the 2 years before or have a regular pattern of buying and selling. See our main home exclusion guide or test your dates in the main home test.
• Inherited property. Transfers to the executor and on to a beneficiary are not taxed, and nor is the beneficiary's later sale under the bright-line test. See inherited property.
• Business premises and farmland. Land used predominantly as business premises, or farmland, is outside the test. A residential rental is not business premises.
• 2023 North Island weather events. Affected property sold to the Crown or a local authority is not taxable.

Rollover relief is different: it does not exclude the sale, it moves the clock. On a qualifying transfer, such as a relationship property settlement or a transfer between associated people who meet the conditions, the person receiving the property takes over the original owner's start date and cost. Our rollover relief guide has the conditions.

Worked example: a rental sold inside 2 years

Say you sign to buy a rental on 20 February 2025 for $700,000, paying $3,000 in legal fees. Title is registered to you on 14 March 2025, so that is your bright-line start date and the second anniversary is 14 March 2027. You add a deck for $15,000, a capital improvement.

On 10 February 2027 you sign a binding agreement to sell for $790,000. Agent and legal fees on the sale come to $22,000. The sale settles on 10 March 2027. Your other taxable income for the year, salary plus net rent, is $85,000. Run through this site's engine:

The sale agreement on 10 February 2027 is before the 14 March 2027 anniversary, so the sale is inside the period. Your $85,000 of other income already reaches the 33% bracket, so the whole $50,000 is taxed at 33%. Interest, rates and insurance are not in the sum, because on a rental they are claimed against the rent each year; you cannot claim them twice. Our deductible costs guide has the detail.

Now change one date. If you had signed the sale agreement on 15 March 2027 or later, the end date would be outside the 2 years and the profit would not be taxable under the bright-line test. A month's wait can be worth $16,500.00 here, which is why the dates matter so much.

The same $50,000 at different incomes

Because the profit sits on top of your other income, the tax depends on what else you earn. For a $50,000 bright-line profit in 2026/27:

To run your own numbers, use the bright-line tax calculator.

How the profit is taxed and reported

There is no separate capital gains tax rate. The profit is added to your taxable income and taxed at the individual rates, which for 2026/27 are:

Companies pay 28%. Our guide to how the gain is taxed goes through the bracket arithmetic.

To report it, you complete an IR833 Bright-line property sale information form for each taxable sale and put your share of the net profit in the "Net bright-line profit" box of your income tax return. IR1229 says that "Usually, the date of settlement will determine the income year the income should be included." So the sale agreement decides whether the sale is caught, and settlement decides which year it is taxed in.

If you make a loss, it is ring-fenced. It cannot reduce tax on your salary, rent or business income, only bright-line profits or other taxable land sale income, now or in later years. You do not put the loss in your return; you keep your own record. See ring-fenced losses. For the full selling process, see our guide to selling a rental.

A quick check in four questions

1. Is it residential land? A house, or a section you could build a house on. Farmland and business premises are out.
2. Did another land rule catch it first? Buying with an intention to resell, or as a dealer, developer or builder, is taxed whatever the timing.
3. Is the sale agreement within 2 years of your title registration? If not, the bright-line test does not apply.
4. Does an exclusion apply? Main home, inheritance, farmland, business premises or rollover relief.

Answer the questions in our is my gain taxable checker for a plain answer with the IRD reference behind it. For the policy debate about a broader tax, see does New Zealand have a capital gains tax?

Questions people ask

How long is the bright-line period in NZ?

2 years for any residential property sale agreed on or after 1 July 2024, counted from the day title is registered to you to the day you sign a binding sale agreement.

Does the bright-line test apply to my family home?

Usually not. The main home exclusion applies if you used more than 50% of the land as your main home and lived there for more than 50% of the bright-line period, subject to limits.

What tax rate applies to a bright-line profit?

Your marginal rate. The profit is added to your other income for the year and taxed at 10.5% to 39% for individuals in 2026/27, or 28% for a company.

If I sell after 2 years, is the profit always tax-free?

Not always. The bright-line test no longer applies, but land bought with an intention of resale, or by a dealer, developer or builder, can be taxed whenever it is sold.