Selling Your Rental Property? The Tax Costs Nobody Warns You About

You've decided to sell your rental. Maybe the numbers don't work anymore. Maybe you're tired of being a landlord. Maybe you just want the capital for something else. Whatever the reason, most landlords focus on the sale price and the agent's commission. But those are just the start.

Here are the tax costs that catch NZ landlords off guard — and how to estimate what you'll actually walk away with.

Cost 1: Bright-line tax

If you sell within the bright-line period, your profit is taxed as income. For a property bought in 2022 for $650,000 and sold in 2026 for $850,000, that's a $200,000 gain. At a 33% marginal rate, the bright-line tax alone is $66,000.

The bright-line period depends on when you bought. Properties purchased between March 2021 and June 2024 have a 10-year period (5 years for new builds). Properties purchased from July 2024 onwards have a 2-year period. If you're outside the period, no bright-line tax applies.

Cost 2: Depreciation recovery (clawback)

If you've been claiming depreciation on chattels — carpets, curtains, appliances, heat pumps — and you sell the property for more than you paid, IRD will claw back the depreciation you've claimed. It gets added to your income in the year you sell.

For example, if you claimed $15,000 in chattels depreciation over 5 years and sold above your purchase price, that $15,000 becomes taxable income. At 33%, that's an extra $4,950 in tax — on top of whatever bright-line tax you owe.

This catches people because it happens even if you're outside the bright-line period. You could sell after 15 years of ownership and still face depreciation clawback.

Cost 3: Agent commission

Real estate agent fees typically range from 2.5% to 4% of the sale price, plus GST. On an $850,000 sale at 3.5%, that's $29,750 plus $4,462 GST = $34,212. This is the cost most landlords know about — but they often underestimate it because they forget the GST component.

Cost 4: Legal fees

Conveyancing on a property sale typically costs $1,000–$2,000 plus disbursements. It's a smaller cost, but it adds up alongside everything else.

Cost 5: Mortgage break fees

If you're on a fixed mortgage rate and need to break it early, your bank may charge a break fee. These vary wildly — from a few hundred dollars to tens of thousands — depending on how far rates have moved since you fixed. Ask your bank for a quote before you commit to selling.

What you actually walk away with

Let's put it all together with a realistic example:

That's $323,338 from an $850,000 sale. The property made a $200,000 "profit" on paper, but after repaying the mortgage and all costs, you're pocketing less than half of the gain. Knowing this before you list — not after — is the difference between a good decision and a nasty surprise.

Run the numbers before you list

Every property is different. Your bright-line period, tax rate, mortgage balance, and depreciation history all affect what you'll walk away with. Our Exit Tax Estimator calculates the full picture in one step.