Key Takeaways
- Rhode Island’s new Non-Owner Occupied Property Tax applies July 1, 2026, to residential properties assessed above $1 million, increasing costs for luxury and vacation homes.
- Exemptions may apply for owner-occupied homes or qualifying rentals exceeding 183 days, but residency-related certifications require careful tax planning.
- Property tax exemption claims may affect Rhode Island income tax residency reviews, creating compliance risks for owners with homes in multiple states.
Beginning July 1, 2026, Rhode Island will impose a new tax on certain high-value, non-owner occupied residential properties. The legislation, aimed primarily at luxury and vacation homes, has been informally referred to as the “Taylor Swift tax” due to the entertainer’s well-publicized Rhode Island residence.
How the Tax Is Computed
The Non-Owner Occupied Property Tax applies to residential real estate with assessed values over $1 million that is not treated as owner occupied. The tax rate is $2.50 for every $500 of assessed value above $1 million. For example, a property assessed at $2 million could generate an additional annual tax liability of $5,000 ($1,000,000 in excess divided by 500 equals 2,000 times $2.50).
Potential Exemptions and Residency Requirements
Certain exemptions may apply, including properties that are occupied by the owner or rented to tenants for more than 183 days during the year. The rental exemption also requires the lease/rental agreement be subject to the Residential Landlord and Tenant Act. The use of the 183-day primary residence occupancy standard, however, introduces broader considerations that need to be evaluated carefully.
Rhode Island tax residency exists if either domicile exists or when an individual maintains a permanent place of abode in Rhode Island and spends more than 183 days in the state during the tax year. Domicile looks to intent to remain through various factors (driver’s license, voting registration, wills, banks, healthcare providers, etc.) whereas statutory residency looks at the objective day count and abode. If an individual is determined to be a resident for income tax purposes, all income is subject to tax in the state.
Property Tax and Income Tax
Although the property tax and income tax rules operate separately, information provided for one purpose may become relevant in the other context. In some situations, individuals may inadvertently create evidence supporting Rhode Island income tax residency while attempting to qualify for an exemption from the new property tax.
For example, representations made on exemption applications for the Non-Owner-Occupied Property Tax regarding time spent in Rhode Island or primary residence status could later be used by the state in evaluating whether the taxpayer should be treated as a Rhode Island resident for income tax purposes. Given the potential revenue implications of the new law, there could be increased scrutiny of exemption claims and residency positions involving high value Rhode Island properties.
Planning Challenges
The interaction between Rhode Island’s new property tax rules and existing residency standards may create planning challenges for taxpayers with homes in multiple jurisdictions. Individuals should evaluate both property tax exposure and potential residency and income tax consequences before making residency-related certifications or exemption claims.
Contact Us
If you have any questions regarding these matters, please contact your PKF O’Connor Davies client service team or:
David Arany, EA
Director
darany@pkfod.com
Sarah A. Guilmette, CPA
Partner
sguilmette@pkfod.com