Under the July 1, 2024 bright-line test changes, if you sell a residential property within two years of the purchase date, you are required to pay tax on any profit made through the property increasing in value. 

If you sell your property after two years of the purchase date, no capital gains tax will apply.

The family home and inherited property are exempt from the bright line test although the 'main home' criteria is defined by the IRD as living in it for 50% of the time you owned it.

For property investors who have been paying high interest rates but were holding out selling due to the previous 10-year bright line tax rules, you now have the option of selling without fear of an exhorbitent tax bill.

If you're thinking of selling a rental property, it pays to compare real estate agents and their contracts.

CHANGES TO CLAIMING INTEREST ON RENTAL PROPERTY 

Also effective from July 1, 2024, the Government has increased the percentage of interest claimable on rental properties to 80% of interest expenses and as of April 1, 2025, this will increase to 100% percent claimable.

With interest rates somewhat higher that in former years, this will come as quite a relief for many. However, the ability to cover expenses on a rental property week to week can still be a challenge.

How much real estate commission should I pay if I decide to sell my rental property?

BRIGHTLINE TEST IF SELLING A RENTAL WITHIN TWO YEARS

Income tax is due on a proportion of the profit made through the property increasing in value, calculated as follows:

• subtract the purchase price from the sale price

• subtract the cost of capital improvements the owner has made

• subtract the costs to buy and sell the property

HOUSE SALE PROFITS AFFECT WFF AND MORE

Any profit from a gain in property value that is considered taxable income (including under the bright-line test) also affects any other obligations or entitlements you have based on taxable income, such as student loan repayments, child support payments and Working for Families.

Thinking of selling your property? Find out how long it takes to sell a house

Agent Finder NZ Service Awards to property sellers:

• Property Advisor of the Year 2023 (Property Institute of NZ - APAC)
• Best Independent Real Estate Advisors 2022 | BUILD 2022 Property Awards
• Best Property Advice Hub New Zealand 2021 | APAC
• Most Reputable Property Advice Hub New Zealand for Wise Up NZ 2020 | APAC
• Best Real Estate Agent Vetting Service 2018 | APAC

Updated July 1, 2024 by Trish Willis | Member of the Property Institute of NZ (IPAC) & Awarded Independent Property Advisor of the Year 2023 (PINZ)

Disclaimer: The content of this researched article is general in nature and not intended as a substitute for specific financial or legal advice on any matter and should not be relied on for that purpose.