Selling property after separation: bright-line and relationship property

When a relationship ends, property usually either moves to one partner or is sold. For the bright-line test the difference matters. A transfer from one partner to the other under a relationship property agreement gets rollover relief: there is no tax on the transfer, and the partner who keeps the property is treated as owning it from the date it was first owned in the relationship, at the original cost. Selling to a third party is not rollover: if the sale is within 2 years of the start date, each owner is taxed on their share unless the main home exclusion applies to them.

The short answer

Separation is a hard time to deal with paperwork, and tax is only one of the things to weigh. This guide is general information, not tax or legal advice, so check with your accountant and lawyer for your situation. Rules checked 10 November 2026 against Inland Revenue's IR1229 Bright-line property tax (March 2026).

The bright-line test taxes the profit on residential property sold within 2 years of its bright-line start date, usually the date the title was registered. After a separation, three questions decide what happens:

1. Is the property moving to one of you under a relationship property agreement, or being sold to someone else? Only the first gets rollover relief.
2. When was it first owned in the relationship? That date, not the date of the transfer, sets the 2-year period for whoever keeps it.
3. Was it your main home? The main home exclusion is tested separately for each owner, and the partner who moved out may not meet it.

If the property was bought more than 2 years before the sale agreement is signed, the bright-line test does not apply at all, whichever way it is divided.

Relationship property transfers and rollover

IR1229 (p29) says rollover relief applies to transfers of property "under a relationship property agreement (between de facto partners, civil union partners, or spouses) under the Property (Relationships) Act 1976". The partner transferring their share is treated as disposing of it at cost, so there is no bright-line tax on the transfer itself.

The relief does not end the bright-line question. IR1229 goes on: "any subsequent sale of the transferred property may be subject to the bright-line test". If the partner who receives the property sells within 2 years of the date it was first owned in the former relationship, they pay tax on the profit unless the main home exclusion applies.

IRD's Emily and Ash example. Emily and Ash buy their first investment property, with the title registered in May 2024. Twelve months later they separate, and in May 2025 the property is transferred into Ash's name under their relationship property agreement. Ash sells in July 2025 for more than the purchase price. The transfer of Emily's share has no tax liability. Ash's sale is taxable, because July 2025 is within 2 years of May 2024, when the property was first owned in the relationship.

This relief is separate from the associated-person rollover rules, which need you to have been associated for 2 years and limit relief to once in 2 years. Our guide to rollover relief for trusts and partners covers those.

Who owns the bright-line period after a split

After a relationship property transfer, the partner who keeps the property steps into the original position. They take the original start date and the original cost. The partner who transferred their share has no further bright-line exposure for that property.

IRD's Alex and Karen example (IR1229 p29). Alex buys a rental and is registered as owner on 1 September 2024. On 2 May 2025 it is transferred to Karen under a relationship property agreement, with no tax on the transfer. Karen signs an agreement to sell on 1 April 2026. Her start date is 1 September 2024, not 2 May 2025, so the sale is within 2 years and taxable. Income is calculated from Karen's sale price "with a deduction for how much Alex pays for the property on 1 September 2024".

In practice this means:

• The clock keeps running. If the property was bought 18 months before the transfer, the partner who keeps it has about 6 months left before a sale falls outside the bright-line period. Our bright-line end date calculator gives the exact anniversary.
• The whole gain moves to the partner who keeps it. If they sell within the period, they are taxed on the full profit since the original purchase, not just the part since the transfer.
• Main home use carries over. When rollover relief applies, time the previous owner used the property as their main home is attributed to the new owner (IR1229 pp21 and 34).

Selling to a third party is not rollover

Many separating couples sell the property and divide the proceeds. IR1229 is clear that this does not get rollover relief, because the property is not transferred to either partner under a relationship property agreement. Two of its examples (pp29 to 30):

• Jay and Ralph buy a rental on 9 September 2025, separate, and sell to a third party on 17 March 2027 because neither wants to keep it. The sale is within 2 years and taxable.
• David and Susan buy a rental on 20 October 2022. As part of their settlement David is to pay Susan $100,000, and they sell the rental to fund it, under an agreement dated 24 September 2024. Rollover does not apply because the property is sold to another party. IRD treats the sale as taxable under the bright-line test.

When co-owners sell, each is taxed on their own share of the net profit (IR833 boxes 10 to 12). Joint tenants share equally, and tenants in common by their shares (IR1229 p22).

Worked example: transfer, or sell together?

Sam and Jordan own a rental 50:50, with the title registered on 1 September 2025 for $820,000. They separate. In one version, the rental is transferred to Jordan under their relationship property agreement on 1 May 2026, and Jordan later sells. In the other, they sell it together. Either way, the sale agreement is signed on 1 February 2027 for $870,000, settling on 1 March 2027, with $17,000 of selling costs. Jordan earns $65,000 a year and Sam $95,000.

The totals happen to match here because $13,100 of Jordan's income space sits in the 30% band, and every other dollar of the gain is taxed at 33% in both versions. With other incomes the totals can differ. What does change is who carries the tax. After a relationship property transfer, the partner who keeps the property carries the whole bright-line liability on a later sale, including the gain made while it was jointly owned. That is something to raise with your lawyer when the settlement is being worked out.

If Jordan instead keeps the rental and signs a sale after 1 September 2027, the bright-line test does not apply. Rent earned in the meantime is taxed in the normal way; see selling a rental. Our guide to how the gain is taxed explains the bands.

Selling the former family home

For a home you lived in, the main home exclusion often decides the outcome. For sales on or after 1 July 2024 it needs both of these, and it is all or nothing (IR1229 pp15 to 16):

• more than 50% of the land used as your main home; and
• the property was your main home for more than 50% of the bright-line period.

The test is applied to each owner separately. IR1229 (p22) says co-owners can have different main homes, and only the co-owner who did not meet the test is taxed, on their share. Intending to live there is not enough, and a family member living there does not count if you do not (p17). For the partner who moved out, the days after they left usually do not count as their main home days.

Example: one partner moves out

Sam and Jordan's family home has a start date of 1 March 2025, and they sign to sell it on 1 February 2027: a bright-line period of 703 days. Jordan lives there throughout. Sam moves out on 1 December 2025.

The sale must still be within 2 years for any of this to matter. Run your own dates through the main home test calculator; our main home exclusion guide covers the details.

Other points for the family home

• Transferring instead of selling. If the home goes to one partner under a relationship property agreement, the other partner's main home use is attributed to them, together with their own use.
• The twice-in-2-years limit. The exclusion is not available if you have already used it twice in the 2 years before the sale (IR1229 pp19 to 20).
• A home owned by a trust. The exclusion depends on the property being a beneficiary's main home and on the principal settlor's main home (IR1229 pp18 to 19).

Other points to check

• Dates. The end date is the date the sale agreement is signed, even if conditions remain. Settlement usually decides which tax year the income falls in (IR1229 p46). See bright-line dates.
• The intention test still applies. QB 25/08 (para 41) says land received under a relationship property agreement can be taxed under section CB 15 if the transferring partner would have been taxed under the intention test. See our intention test guide.
• Losses. A bright-line loss can only offset other land sale income, not salary (IR1229 p46). See ring-fenced losses.
• Costs. The deduction is the original purchase price and costs, capital improvements and selling costs. Holding costs on a vacant home are deductible only from the sale agreement to settlement. See deductible costs.

To check a sale, use our bright-line calculator: choose "rollover" under special cases if the property came to you under a relationship property agreement, and enter the original start date and cost.

Questions people ask

Is there tax when my former partner transfers their share of our house to me?

Not under the bright-line test, if the transfer is under a relationship property agreement under the Property (Relationships) Act 1976. Rollover relief treats it as at cost. A later sale by you can still be taxed.

Does the 2-year period restart when the property is transferred to me?

No. IRD's Alex and Karen example says your start date is the date the property was first owned in the relationship, and your cost is the original purchase price.

We are selling our rental to a buyer as part of our settlement. Does rollover apply?

No. IRD's Jay and Ralph and David and Susan examples say a sale to a third party is not rollover. If the sale is within 2 years of the start date, each of you is taxed on your share of the profit.

I moved out of the family home. Can I still use the main home exclusion when it sells?

Only if it was your main home for more than 50% of the bright-line period and more than 50% of the land was used as your main home. Days after you moved out generally do not count, even if your family stayed.