Take a residential rental bought for $700,000 and sold 1.5 years later for $850,000, with $20,000 of selling and improvement costs. The taxable gain is the sale price less the purchase price less those costs, so $850,000 minus $700,000 minus $20,000, which is $130,000. Because the property was held for 1.5 years, inside the 2 year bright-line window, the gain is caught and taxed at the seller’s marginal rate. At a 33 percent marginal rate the bright-line tax is 33 percent of $130,000, which is $42,900.
That leaves a net gain after tax of $87,100. Timing changes everything here. Had the same property been held just past the 2 year mark, the bright-line test would not apply and the $130,000 gain would generally be untaxed, since New Zealand has no general capital gains tax. The main home is also usually excluded from the test. The exceptions are if you are a property dealer or bought specifically to resell, in which case the gain can be taxable regardless of how long you held it.
Step
Amount
Sale price
$850,000
Less purchase price
$700,000
Less costs
$20,000
Taxable gain
$130,000
Bright-line tax at 33 percent
$42,900
Net gain after tax
$87,100
How it is calculated
New Zealand has no broad capital gains tax, so the bright-line test is a targeted rule for residential property. First the gain is worked out as sale price less purchase price less allowable selling and improvement costs. Then the holding period is checked against the 2 year bright-line window, which was shortened to 2 years from 1 July 2024. If the sale falls inside that window, the whole gain is added to the seller’s income for the year and taxed at their marginal rate, anywhere from 10.5 up to 39 percent. If the property was held longer, no bright-line tax applies. The main home is generally exempt, and separate intention and dealer rules can tax a gain even outside the window. This is an estimate, so confirm your position with Inland Revenue or an accountant.
Frequently asked questions
How does the bright-line test work?
New Zealand has no general capital gains tax, but the bright-line test taxes the gain on residential property sold within 2 years of purchase (the period was shortened to 2 years from July 2024). The gain is added to your income and taxed at your marginal rate. Your main home is generally excluded. Outside the 2-year window, a residential gain is usually not taxed unless you are a dealer or bought with intent to resell.
Is the main home excluded from the bright-line test?
Yes, in most cases. Inland Revenue excludes a property that was your main home for the whole time you owned it. If you used part of the property to earn income, or if it was your main home for only part of the period, a proportion of the gain may still be taxable. People who have claimed the main home exclusion more than twice in a two-year period lose access to it for subsequent sales, so frequent use of the exclusion is limited under IRD rules.
What NZ income tax rates apply to a bright-line gain in 2025/2026?
The gain is added on top of your other income for the year and taxed at your marginal rate. For the 2025/2026 tax year the rates are: 10.5 percent on income up to $14,000; 17.5 percent from $14,001 to $48,000; 30 percent from $48,001 to $70,000; 33 percent from $70,001 to $180,000; and 39 percent on income above $180,000. KiwiSaver contributions are not deductible against a bright-line gain, but contributions from employment income continue normally and employer contributions are not affected.
What costs can be deducted when calculating the bright-line gain?
IRD allows you to deduct the original purchase price, legal and conveyancing fees, real estate agent commission on the sale, and capital improvement costs that added value to the property. You cannot deduct routine maintenance, rates, insurance, or mortgage interest as part of the bright-line gain calculation. If you claimed interest deductions as a landlord under the phased-back interest deductibility rules, those claimed amounts may need to be taken into account separately. Always confirm allowable deductions with a tax advisor before filing.