Property Investors Listen Up!

If you are a residential property investor you’ll need to read these fact sheets from the IRD.

Extension of the bright-line test

 There will be an extension of the bright-line test to 10 years. The bright-line test means if you sell a residential property within a set period after acquiring it you will be required to pay income tax on any profit made through the property increasing in value. The current bright-line period is 5 years. The Government has announced it intends to extend the bright-line period to 10 years for residential property except for newly built houses (new builds). Inherited properties and those which have been the owner's main home for the entire time they owned it will continue to be exempt from all bright-line tests.

Check out this fact sheet for more information.

Interest deductions on residential property income - Proposed changes

The current law: Currently, when owners of residential investment property calculate their taxable income they can deduct the interest on loans that relate to the income from those properties (claimed as an expense). This reduces the tax they need to pay.

The proposed new law: The Government has agreed to change the rules that allow property owners to claim interest on loans used for residential properties as an expense against their income from those properties. The Government will consult on the detail of these proposals and legislation will be introduced shortly thereafter. The consultation will cover an exemption for new builds acquired as a residential investment property, and whether all people who are taxed on the sale of a property (for example under the bright-line tests) should be able to deduct their interest expense at the time of the sale.

Check out this factsheet for more information.

 If you have concerns or would like to chat about how the changes may affect you, please touch base.