As regulations tighten for property owners, short-term landlords are grappling with new tax laws. Notably, Rhode Island has introduced a controversial measure, commonly referred to as the Taylor Swift tax, targeting individuals who own vacation rentals but do not reside in them full-time. This legislation underscores a growing trend among states to impose additional taxes on non-primary residences, resulting in escalating tensions within the real estate community.
Set to take effect on July 1, 2026, this tax, officially named the Non-Owner-Occupied Property Tax Act, imposes a yearly surcharge on properties valued over $1 million that are not occupied by their owners or tenants for at least 183 days a year. For instance, a property valued at $3 million will incur an additional charge of approximately $10,000, compounding the financial strain on owners already managing standard property taxes.
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The Implications of the Taylor Swift Tax
The tax’s name originates from pop sensation Taylor Swift, who purchased a mansion in the affluent Watch Hill area of Rhode Island in 2013. Under the new tax, it is estimated that she will owe an additional $136,000 annually. This situation raises concerns among landlords who may not have anticipated such high taxation on their rental properties. For many, this could significantly impact their profitability, particularly for those renting homes for over half the year without establishing long-term leases.
Industry Reactions and Concerns
Reactions from the real estate sector have been largely negative. Local agents and brokers express concerns that the tax penalizes those who contribute to the economy by investing in these communities. For example, Donna Krueger-Simmons, a sales agent with Mott & Chace Sotheby’s International, stated, “These are people who come here for the summer, spend their money, and pay their fair share of taxes. They’re being penalized just because they also live somewhere else.”
Moreover, industry professionals worry that this could drive potential buyers and investors to other locations with more favorable tax conditions. As affluent homeowners consider their options, brokers fear that the tax could deter vacation homeowners, pushing them to invest in neighboring towns with more lenient regulations.
Similar Tax Measures in Other States
Rhode Island is not alone in this tax initiative. Similar reforms are being enacted in other states, such as Montana. Starting in 2026, Montana will differentiate between primary residences and secondary or vacation homes, requiring non-primary residents to pay a flat tax rate of 1.90%. This change arises from an influx of new residents during the pandemic, further complicating the housing market.
In Massachusetts, Cape Cod is contemplating an annual mansion tax, imposing a 2% transfer tax on properties sold for over $2 million. Advocates believe this measure could generate substantial revenue for affordable housing initiatives while simultaneously addressing the housing crisis in the region.
California’s Approach to Mansion Taxes
California’s Los Angeles has also adopted a mansion tax, known as Measure ULA, which imposes a 4% tax on property sales between $5 million and $10 million and a 5.5% tax for properties exceeding $10 million. Although aimed at funding affordable housing and homelessness prevention programs, the tax has come under scrutiny for its potential to hinder housing development. Former Assembly Speaker Bob Hertzberg commented on the unintended consequences of such taxes, indicating that they may inadvertently slow down construction efforts.
Strategies for Landlords Moving Forward
For those operating in states like Rhode Island or Montana, it is crucial to stay informed about these evolving regulations. While seeking loopholes is not advisable, savvy investors may find ways to mitigate their tax liabilities. For instance, if a portion of a property is used as a primary residence, the tax burden may be proportionally reduced based on the percentage of the home occupied.
Additionally, landlords should consider enhancing their properties to increase rental income while taking advantage of renovation and depreciation tax deductions. Paying the new taxes on time and ensuring compliance will enable landlords to focus on long-term strategies for success in an increasingly complex market.
Set to take effect on July 1, 2026, this tax, officially named the Non-Owner-Occupied Property Tax Act, imposes a yearly surcharge on properties valued over $1 million that are not occupied by their owners or tenants for at least 183 days a year. For instance, a property valued at $3 million will incur an additional charge of approximately $10,000, compounding the financial strain on owners already managing standard property taxes.0
