From July 1 2024, the Bright-Line Test period was reduced from ten to two years. This adjustment aims to balance the property market by allowing for quicker turnover while still taxing speculative gains.
This means that if you purchase a residential property on or after this date and sell it after two years, you won’t have to pay income tax on any profit from the sale (assuming no other tax rules apply to your situation).
If you purchased a property before July 1 2024, the previous Bright-Line Test rules still apply. For properties bought between March 27, 2021, and June 30, 2024, you need to hold the property for 10 years to avoid paying tax on the profit from its sale.
Key Exceptions and Details:
- Main Home Exclusion: The Bright-Line Test does not apply if the property is your main home.
- New Builds: These properties will continue to have a five-year Bright-Line Test period.
- Inheritance and Relationship Property Transfers: If you inherit a property or receive it as part of a relationship property settlement, the Bright-Line Test does not apply.
It is also important to note that if you are selling outside of the Bright-Line Test period, other property sale rules that may still apply if you:
- buy a property with the intention to sell it
- have a pattern of buying and selling or building and selling your main home
- or a person you’re associated with is in the business of property dealing, developing or building and the property was bought for the business.
What is the Bright-Line Test?
The Bright-Line Test is a rule that determines whether you need to pay income tax on the profit from selling a residential property.
Implications for Property Owners and Investors
The reduction of the Bright-Line Test period to two years is significant for both investors and property owners. It may encourage more short-term buying and selling of properties, potentially increasing market activity and turnover.
Navigating property investment and ownership can be complex, especially with ongoing changes to laws and regulations. Staying informed about these changes, like the recent adjustments to the Bright-Line Test, helps you make better decisions and avoid unexpected tax liabilities.
At Angel Property Managers, we’re here to help you understand and navigate these changes. If you have any questions or need assistance with your property management needs, don’t hesitate to reach out.
For more details on the Bright-Line Test changes, you can visit the IRD website.