If you own a rental home, a second home or a small apartment building, you pay property tax on it just like a homeowner does. But you will often pay more for the same value, because many of the breaks in state law apply only to the home you live in. Knowing the difference matters for anyone thinking about renting out a house, buying a duplex or keeping a home after moving.
Why rentals often pay more
Property tax rates usually do not change based on who lives in a home. What changes is the taxable value, because most relief is tied to a primary residence. A rental property typically misses out on:
- Homestead exemptions. These take a fixed amount off the value of the home you live in. In Texas, for example, the school homestead exemption is large enough to save a typical owner well over a thousand dollars a year, and rentals do not get it. See our homestead guide.
- Assessment caps. Several states limit how fast a homestead’s taxable value can rise, but use a looser limit or none for other property. In Florida, a homestead’s value can rise at most 3% a year, while a rental’s can rise up to 10% a year. In Texas, the 10% cap applies only to homesteads.
- Lower assessment ratios. Some states assess owner-occupied homes at a lower share of value. In South Carolina, a primary residence is assessed at 4% of value and a rental at 6%, so the rental’s bill is 50% higher before anything else is counted.
- School tax breaks. In Michigan, a homestead is exempt from up to 18 mills of school operating tax that non-homestead property pays. On a $200,000 rental with a taxable value of $100,000, that is up to $1,800 a year extra.
- Senior and veteran exemptions. These almost always require that the owner live in the home.
The gap is largest in states that lean hardest on homestead breaks. In some, a rental can pay twice what an identical owner-occupied home next door pays.
When you move out and rent your old home
This is a common trap. When you move and keep your former home as a rental, you usually have to tell the assessor that it is no longer your primary residence. The homestead exemption ends, and in cap states the value may reset to market value the next year. Owners who leave the exemption in place can face back taxes, penalties and interest when the county finds out, and many counties now check through driver’s license, voter and income tax records.
Plan for the higher bill before you set the rent.
Short-term rentals
Homes rented by the night through vacation rental sites are treated differently from place to place. Some counties tax them as ordinary residential property. Others classify a home used mainly for short stays as commercial or business property, which can mean a higher rate or assessment ratio. Short-term rentals may also owe separate lodging or occupancy taxes. Check with your county assessor and city before you list.
Deducting property tax on a rental
Property tax on a rental is a business expense. You deduct it on Schedule E of your federal return, along with mortgage interest, insurance and repairs. It is not part of the SALT deduction, so the cap that limits homeowners does not apply. Our SALT guide explains the cap for your own home.
For a property you use partly yourself, such as a vacation home you rent for part of the year, the tax is split between personal and rental use based on the days of each. The IRS rules for vacation homes explain how.
How property tax shows up in rent
Landlords set rents to cover their costs, and property tax is one of the largest. Over time, higher property taxes tend to show up in higher rents, especially in tight rental markets. Our guide on whether renters pay property tax looks at how much of the tax is passed on. A few states, including Minnesota, Michigan and Vermont, give renters a credit or refund for the share of property tax built into their rent.
Estimating the tax before you buy
Before you buy a rental, do not rely on the seller’s bill. If the seller lived in the home, their bill likely included a homestead exemption or a capped value you will not get. Instead:
- Find the county’s tax rate for that address, including the school district and any special districts.
- Apply it to the price you plan to pay, adjusted for the state’s assessment ratio, with no homestead exemption.
- Add any non-homestead extras, such as Michigan’s school mills.
Our calculator gives a quick starting point from the typical rate in each county, and our home buying guide explains how the tax is split at closing. For a rental, err on the high side. The tax rarely falls after a sale.
Figures from the US Census Bureau American Community Survey, 2020-2024. How we calculate them.
