Investment property tax

Invest in property

Tax! Getting the Right Advice

If you're buying and selling property, whether it be your family home or not, it is recommended you seek advice from a tax professional.

One of the factors that may not have crossed your path on your home ownership journey thus far, is that of tax consequences. This topic should certainly be discussed with a specialist who can provide you with a review of the benefits or consequences that may occur as an investment owner or individual dealing with selling and buying property.

Buying and selling

Buying and selling your home usually has no tax implications. However, if you buy a home with the intention to flip or resell it and you do this regularly, you could earn income from this process. This is commonly known as property dealing and does have tax implications to consider.

Income from rental property

Another form of tax you may need to educate yourself on is the tax applicable on your rental income. The amount of tax you pay is determined by factors such as the type of property it is and the rental term, is it a short-term stay or long-term tenancy?

Here are some examples of rental incomes that could have tax implications:

Renting out your home or its rooms to boarders
Leasing the use of your land
A caravan on your property
A sleep-out
Your holiday home

Interest Deductibility

New Zealand's interest deductibility rules for residential property loans have changed. Effective April 1, 2024, 80% of interest incurred on residential property loans can be claimed as an expense. This applies regardless of when the property was acquired or the loan was drawn.

The deductibility will be fully restored on April 1, 2025, allowing claims for 100% of the interest.

The Bright-line property rule

If you sell a residential property within a set period after buying it, you may have to pay income tax on any gain on the sale. The bright-line property rule looks at the timing of when a property was acquired and sold.

From 1 July 2024, the bright-line property rules are changing.

If you sell on, or after this date, the bright-line property rule will only apply if the property is sold within 2 years of buying it.

If you sell a property before 1 July 2024 the current bright-line periods still apply:

If you bought the property between 29 March 2018 and 26 March 2021, the bright-line property rule applies if you sell the property within 5 years of buying it.
If you bought the property on or after 27 March 2021, the bright-line property rule applies if you sell the property within 5 years for qualifying new builds or within 10 years for other residential property.

The bright-line property rule does have some exceptions. The bright-line property rule generally does not apply to the sale of an owner-occupied homes, inherited property, or if you are the executor or administrator of a deceased estate. It also is exempt for property acquired before October 1, 2015.

Summary

Engaging with a professional who can take you through tax related topics as it pertains to owning an investment property or changes to your income through any development is highly recommended. An accountant, other tax specialists and trusted professionals who specialise in tax, property law and investments, will be able to explain and expand on your knowledge, to keep you up to date with all you need to know.

Reach out to us in the chat bubble below or have a look at our useful links and related questions for more valuable information.

Useful Links

IRD

Property bright-line rule explained