The bright-line test, which taxes money earned on people's additional homes if sold within a certain period of time, is being doubled from five years to 10.
The move was announced by the Government today as part of a package to help first home buyers and slow rising houses prices.
Finance Minister Grant Robertson said the extension of the bright-line test would "dampen speculative demand and tilt the balance towards first home buyers".
"Taking action is in everyone’s interests as continuing to allow unsustainable house price growth could lead to a negative hit to the whole economy," Robertson said.
It does not apply to the family home. The current bright-line test of just five years will be kept the same for new build investment properties.
The Government was eyeing increasing the bright-line test in November .
"House price increases of the magnitude we have seen in recent months are not only harmful to affordability, they also present a risk to economic stability," Robertson said.
"Our plan also encourages investment in new builds. This will give Kiwis a better chance at purchasing their first family home. I want to stress that the bright-line test does not and will not apply to the family home," Robertson said.