Montana Rental Homeowners Face Tax Deadline

With the March 1 deadline nearing, data from the Montana Department of Revenue indicates that about 75% of rental property owners in the state have not yet applied for exemptions meant to shield their properties from significant tax hikes when the new second home tax takes effect in this fall’s tax bill.

If tens of thousands of landlords don’t submit their applications shortly, long-term rentals could see tax increases in the double digits, which might lead to higher rents for tenants.

Jason Reed, a spokesperson for the Department of Revenue, mentioned in an email that officials are actively trying to inform property owners about the upcoming filing deadline.

According to Slade from the Department of Revenue, they aim to ensure that all eligible homeowners take advantage of the reforms implemented by Congress.

John Synrude, president of the Montana Landlord Association, shared in a Monday interview that many landlords seem puzzled by the guidance provided by the Department of Revenue.

He pointed out that some property owners worry about potential legal issues if their business information reported while applying for an exemption doesn’t exactly match what they submit to the income tax division.

“They’re concerned about being accused of fraud,” Synrude explained.

Landlords can apply for exemptions at homestead.mt.gov, where they’ll need to provide details on annual rental income, expenses, and monthly rent. Tenants can also check their landlord’s application status using a lookup tool on the Department of Revenue’s website.

To exempt long-term rentals from higher tax rates, applications are necessary due to the second home tax enacted by lawmakers and Governor Greg Gianforte last year. This law sets a higher tax rate for residential properties but offers a reduced rate for owner-occupied homes and long-term rentals.

Supporters of the law believe that it benefits homes used as residences for Montanans, offsetting this tax relief with increased taxes on second homes and short-term rentals like Airbnbs.

In a response to an inquiry from MTFP, the Department of Revenue stated in a February 19 email that it has received approximately 19,100 applications for long-term rental exemptions, covering around 31,700 residential units. They indicated that an additional 4,000 to 5,000 paper applications are still in process.

Comparatively, data from the U.S. Census Bureau estimates about 147,000 rental housing units in Montana. If each pending application corresponds to one rental unit, around 110,000 rental households are still unaccounted for, nearly three-quarters of the state’s rental properties.

The census data doesn’t perfectly correspond to how the state categorizes real estate for tax purposes, and while the Department of Revenue has previously referred to similar census data in tax assessments, they have refrained from providing alternative figures regarding qualifying rental properties. Historically, the tax code hasn’t necessitated the department to track residential properties used as rentals versus those that aren’t.

Synrude and the Montana Landlords Association also highlighted inconsistencies between the second home tax law and the application documents concerning situations where individuals rent out rooms or units on their primary residence property.

“There are many scenarios not covered by this law,” he stated.

In contrast to rental properties, the new law conveniently makes most homeowners eligible for “homestead” treatment after they’ve applied for a state-issued property tax refund last year.

Responding to inquiries from MTFP, the Department of Revenue revealed that around 230,300 properties have already received principal residence exemptions, with 9,076 applications still waiting as of February 19. Primary residences also have a March 1 application deadline.

The complexity of the state’s property tax system leaves some uncertainty about how the tax amount for individual properties might change depending on whether they qualify for the lower tax rate. A preliminary analysis last year suggested that taxes on average homes not exempt from second home tax as a primary residence or rental might rise by 50% from 2025 to 2026.