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Rhode Island’s New Tax Law Impacts Rental Property Owners
The landscape of rental property ownership in the United States is undergoing notable transformations, particularly in Rhode Island. The introduction of the Non-Owner-Occupied Property Tax Act, informally referred to as the Taylor Swift tax, is prompting part-time landlords to prepare for new financial responsibilities. This legislation specifically targets owners of vacation rentals who do not occupy their properties for more than 183 days each year, imposing an annual surcharge on non-primary residences.
Set to take effect on July 1, 2026, this new tax law represents a significant financial burden for landlords. The surcharge will be assessed at $2.50 for every $500 of the property’s assessed value that exceeds the $1 million threshold. For example, a property valued at $3 million would face an additional tax of approximately $10,000 per year, adding to the existing property tax liabilities.
The Taylor Swift Tax and Its Implications
The so-called Taylor Swift tax has garnered significant attention. Named after the famous pop star, the tax is linked to her purchase of a mansion in the affluent Watch Hill area of Rhode Island in 2013. As a part-time resident, Swift is expected to owe approximately $136,000 annually once the tax is enacted.
The state aims to generate revenue to support housing initiatives and reduce the number of vacant homes. However, professionals in the real estate sector express concern over the potential repercussions of this tax. Will it deter high-value property purchases and affect the overall market?
Industry Reactions
Real estate professionals are expressing significant opposition to the new law. Donna Krueger-Simmons, a sales agent at Mott & Chace Sotheby’s International, indicated, “These individuals come to the area, contribute to the local economy, and fulfill their tax responsibilities. Penalizing them simply due to their part-time residency is unjust.”
Lori Joyal, an agent at Lila Delman Compass, added that the tax could deter affluent property owners from visiting, which may negatively impact local businesses that depend on their patronage. Brokers are increasingly concerned that this tax might encourage vacation homeowners to seek investments in regions with more favorable tax regulations.
Similar Trends in Other States
Rhode Island is not the only state adopting such measures. Montana is also implementing reforms that differentiate between primary residences and vacation properties. Starting in 2026, non-primary residents and short-term rental owners in Montana will face a flat tax rate of 1.90%, regardless of property value. In contrast, primary residences and long-term rentals may be eligible for reduced tax rates.
In Montana, homeowners who occupy their properties for at least seven months each year can apply for lower tax rates and receive a one-time rebate for 2025. This initiative seeks to ease the financial burden on homeowners while tackling the rising demand for housing, particularly due to the pandemic-driven influx of new residents from urban areas.
Tax Measures in Cape Cod and California
Discussions regarding tax measures are underway in Cape Cod, Massachusetts. Local authorities are considering a mansion tax, proposing a 2% real estate transfer tax on properties sold for over $2 million. Proponents of this tax argue that it could generate significant revenue—estimated at approximately $56 million annually—designated for affordable housing initiatives.
In addition, full-time residents in Chatham, Cape Cod, will see the implementation of a 35% property tax exemption beginning July 1, 2026. This measure aims to address the wealth disparity between residents and non-residents.
Similarly, Los Angeles, California, has enacted a mansion tax known as Measure ULA. This measure imposes a 4% transfer tax on property sales priced between $5 million and $10 million, increasing to 5.5% for sales exceeding $10 million. However, this tax has drawn criticism for potentially hindering new housing development, particularly for multifamily units.
Future Considerations for Landlords
Landlords in states such as Rhode Island and Montana must remain vigilant regarding evolving regulations. While seeking loopholes is not advisable, astute investors might identify gray areas that could offer advantages. For example, if a property owner occupies a portion of their residence while renting it out as a short-term rental, they could potentially adjust their tax liability based on the percentage of the property utilized.
The financial implications of regulations like the Taylor Swift tax necessitate that property owners thoroughly assess their rental strategies. By increasing rental income and leveraging deductions for renovations and depreciation, landlords can mitigate the impact of new tax burdens. The essential strategy is to adapt to the changing landscape and maintain proactive tax planning.
