The real estate landscape is undergoing significant changes, particularly for those engaged in vacation rentals. Recently, Rhode Island introduced a tax that has garnered considerable attention, referred to as the ‘Taylor Swift tax’. This legislation targets homeowners of non-primary residences, aimed at generating additional revenue while addressing the state’s housing challenges.
Set to be implemented on July 1, 2026, this legislation, formally known as the Non-Owner-Occupied Property Tax Act, imposes a surcharge on properties valued over $1 million that are not occupied by their owners or tenants for at least 183 days within a year. The implications of this tax could be profound for property owners who utilize their homes for short-term rentals.
Understanding the specifics of the new tax
The tax applies a surcharge of $2.50 for every $500 of assessed property value that exceeds the $1 million threshold. For instance, if a property is valued at $3 million, the owner can expect to pay an additional $10,000 in taxes annually, layered on top of existing property taxes. This additional financial burden may deter many from maintaining their rental operations.
The catalyst for the tax’s name
This tax has been nicknamed after the pop icon Taylor Swift, who is a part-time resident of Rhode Island. Swift’s acquisition of a mansion in the upscale Watch Hill area in 2013 has drawn attention to the issue, and it is anticipated that she will incur an estimated $136,000 in extra tax obligations once the new legislation takes effect.
The broader implications for short-term landlords
The primary intention behind the introduction of this tax is to generate revenue to fund housing initiatives and encourage the utilization of vacant properties. For short-term rental operators, this could be a significant financial setback. They would face taxation not only on the income derived from renting their homes but also from the new surcharge, should they not comply with the 183-day occupancy rule.
Members of the real estate community have expressed their discontent with the new tax. Donna Krueger-Simmons, a sales agent with Mott & Chace Sotheby’s International in Watch Hill, remarked, “These are individuals who contribute to our economy during the summer months by spending and paying their fair share of taxes. It feels unfair to penalize them simply because they have residences elsewhere.”
The potential fallout from the new tax
Concerns abound that this tax might drive affluent vacation homeowners to seek alternatives in nearby towns with more favorable tax regulations. If this trend continues, it could lead to a decline in tourism-related spending, further impacting local businesses that rely on such income.
Similar trends in other states
Rhode Island is not alone in targeting vacation rentals; other states, such as Montana and Massachusetts, are considering similar reforms. Montana has enacted a flat tax rate of 1.90% for non-primary residences and short-term rentals, which is set to begin in 2026. This policy aims to address the influx of new residents drawn to the state during the pandemic.
Meanwhile, Cape Cod is evaluating a mansion tax, implementing a 2% transfer tax on real estate transactions over $2 million. Proponents argue that this tax could generate substantial revenue to support affordable housing initiatives in the region. This trend reflects a growing recognition of the need to balance tourism income against local housing needs.
The California example
California’s Los Angeles has introduced its own version of a mansion tax, known as Measure ULA, targeting property sales between $5 million and $10 million. This tax aims to bolster funding for affordable housing and homelessness prevention programs. However, it has also faced scrutiny due to its potential negative impact on housing construction and overall market dynamics.
Strategic responses for landlords
Set to be implemented on July 1, 2026, this legislation, formally known as the Non-Owner-Occupied Property Tax Act, imposes a surcharge on properties valued over $1 million that are not occupied by their owners or tenants for at least 183 days within a year. The implications of this tax could be profound for property owners who utilize their homes for short-term rentals.0
Set to be implemented on July 1, 2026, this legislation, formally known as the Non-Owner-Occupied Property Tax Act, imposes a surcharge on properties valued over $1 million that are not occupied by their owners or tenants for at least 183 days within a year. The implications of this tax could be profound for property owners who utilize their homes for short-term rentals.1