New rules flesh out details of Montana's upcoming second-home tax

Major tax legislation passed by the 2025 Legislature swung tax bills dramatically for most Montana homeowners this year, pulling bills down for many and raising them for others.

Now, new rules proposed by the department aim to flesh out the details around a second phase of the legislation — a second-home tax that will take effect next year in an effort to provide further relief to homes being used as housing for Montana residents.

Those rules provide additional details on what qualifying homeowners and landlords will need to do to avoid being stuck with higher tax rates — as well as specifics on how the department plans to handle situations such as properties where an Airbnb-style short-term rental shares a parcel with a primary residence.

WHAT IS IN THE LAW?

As it takes full effect next year, the second-home tax will generally boost taxes on residential properties that aren’t being used as resident housing in order to lower tax bills on other properties, including second homes and Airbnb-style short-term rentals. However, to sidestep constitutional requirements that typically limit the state’s power to discriminate against nonresidents, it will operate via a slightly convoluted mechanism.

Essentially, the law will raise the default tax rate for most residential property. It will then offer a homestead exemption that cuts rates back down for qualifying homes.

That means that many homeowners and landlords will have to apply for the homestead exemption in order to keep their tax bill from spiking by an estimated 50% on average next year.

WHO IS ELIGIBLE FOR LOWER TAX RATES?

The department has automatically qualified many homeowners who received property tax rebates over the past few years. Other qualifying property owners, including landlords, will need to apply during an application period that will run from Dec. 1 to March 1. More information on the homestead application process is available at homestead.mt.gov.

Generally, the law specifies that the homestead exemption will be available to two groups of property owners: 1) homeowners who live in their homes as “principal residences” for at least seven months a year and 2) landlords who rent homes out on long-term leases for at least seven months a year.

The new rules proposal requires property owners who have successfully qualified for the lower rates to notify the department within 30 days of an ownership change or if they move their primary residence elsewhere. The rules also specify that temporary absences from a home due to medical issues, military deployment or work assignments don’t affect a property’s status.

The rules don’t specify how the department intends to enforce its proposed provisions.

MORE DETAILS ON WHAT PROPERTIES QUALIFY

The new rules also specify that a homestead exemption on a property “used exclusively as a principal residence” will apply to the value of not just the main home structure but also the underlying land and outbuildings — clarifying that the second-home tax shouldn’t fall on sheds and detached garages.

The rules also specify that properties including multiple housing units will be prorated accordingly if only some of them qualify for the homestead reduction. For example: 

An owner-occupied house on a property that has an accessory dwelling unit or outbuilding used as a long-term rental will qualify for taxation entirely at the lower tax rates.

In the case of an owner-occupied house on a property that has an outbuilding used as a guest house and short-term rental, the land and main house will qualify for the lower tax rates — but the value of the outbuilding will be taxed at the higher rate.

In the case of two siblings who live year-round in adjoining houses on a single parcel they co-own, both properties will count as principal residences and the entire property will qualify for the lower tax rates.

WHAT ABOUT MULTI-FAMILY UNITS?

A similar prorated approach will apply to multifamily housing units — as well as to properties that combine business and residential uses:

In the case of a fourplex where one unit is owner-occupied and the other three are rented on a long-term basis, the entire property would qualify for the lower tax rates.

In the case of a fourplex where one unit is owner-occupied, two are rented on a long-term basis and one is rented as an Airbnb, 75% of the property value would qualify for the lower tax rates and 25% would be taxed at the higher rates.

In the case of a property where the owner is living on the site of an automotive shop that occupies most of the property, the value of the structure being used as a principal residence will be eligible for the lower homestead tax rate, as opposed to the state’s commercial tax rate.

HOW MUCH WILL QUALIFYING PROPERTIES SAVE?

This is tricky to say in a definitive way because of the complexities around how individual properties fit into the tax systems their communities use to fund services ranging from law enforcement to public schools.

Preliminary projections released by the department earlier this year estimated that 2026 tax bills will be on average 18% lower than 2024 bills for owner-occupied homes that qualify for the homestead exemption. In contrast, bills for non-qualifying properties were expected to rise 68%.

WHAT IF I WANT TO WEIGH IN ON THE SECOND-HOME TAX RULES?

The full rules proposal is available here. The department plans to hold a public meeting to solicit input on the proposed rules in the third-floor conference room of its Mitchell Building in Helena at 11 a.m. on Dec. 1. Written comments can also be submitted to department rule reviewer Todd Olson at todd.olson@mt.gov through 5 p.m. on Dec. 8.