Gov. Greg Gianforte said Thursday that a “technical glitch” has spurred the state to extend an application deadline that thousands of Montana landlords need to meet in order to avoid the state’s new second-home tax. 

The deadline, which had been set for March 1, has now been pushed back to midnight on March 20, according to Gianforte and the Montana Department of Revenue.

Officials cited issues with the revenue department’s online application portal amid a slew of last-minute filings as the reason for the extension.

“This extension is a direct response to intermittent technical issues with the department’s online application portal caused by a high volume of last-minute filings,” the agencies wrote in a Thursday release.

The second-home tax was passed by lawmakers last year in an effort to lower taxes on year-round resident housing. The concept, developed by Rep. Llew Jones, R-Conrad, was a major plank in Gianforte’s 2024 re-election campaign.

The policy works by raising default tax rates for residential properties and offering exemptions that provide lower tax rates on owner-occupied homes and long-term rentals. Applications for those exemptions are necessary because the state’s tax code hasn’t previously required the revenue department to differentiate between residential properties being used as owner-occupied residences or long-term rentals versus second homes and Airbnb-style short-term rentals. The legislation’s backers wanted to tax the latter at higher rates in order to offset tax relief for resident housing. 

MTFP reported earlier this week that the landlords for more than 100,000 rental units hadn’t applied for the exemption as of Feb. 19. That means they — and potentially their tenants — could be saddled with hefty tax bill increases as the second-home tax law treats their properties like vacation homes.

Most Montana homeowners, in contrast, were automatically qualified for an exemption by the revenue department after successfully applying for a property tax rebate last year. Homeowners who weren’t automatically qualified must also apply by the deadline now amended to March 20.

While the second-home tax legislation explicitly required the application period to run from Dec. 1, 2025 to March 1, the revenue department said in Thursday’s release that a crush of last-minute applications had “created extenuating circumstances.”

“Our priority is to ensure that no Montanan is penalized due to technical difficulties with our filing systems given the magnitude of last-minute applications,” revenue director Brendan Beatty said in a statement.

The governor offered similar comments.

“State government should be customer-friendly and responsive,” Gianforte said. “Because of the overwhelming number of Montanans utilizing the portal to claim the lower tax rates, we are extending the deadline to ensure that no one is penalized by a technical glitch.”

Homeowners who live in their properties for at least seven months a year and landlords who rent to tenants on a long-term basis can apply for exemptions at homestead.mt.gov.

Homeowners, landlords and tenants can also check their home’s application status via a lookup tool on the revenue department website.

The post Gianforte extends deadline for landlords to avoid second-home tax appeared first on Montana Free Press.

With a March 1 deadline looming, data from the Montana Department of Revenue indicates that landlords for as many as three-quarters of the state’s rental housing units haven’t applied for an exemption that would shield their properties from hefty tax increases as the state’s new second-home tax is fully implemented on this fall’s tax bills.

Unless tens of thousands of landlords successfully apply in the coming days, long-term rental properties across the state could be hit with a double-digit increase on tax bills — an expense that could translate to steep rent hikes for tenants.

In a Monday email to Montana Free Press, revenue department spokesperson Jason Slead said the state agency is working diligently to get the word out about the March 1 application deadline.

“The Montana Department of Revenue is committed to ensuring every eligible property owner benefits from the reforms passed by the Legislature,” Slead wrote.

John Sinrud, the president of the Montana Landlords Association, said in a Monday interview with MTFP that he’s hearing from many landlords who are confused by the revenue department’s guidance materials. 

Among other issues, Sinrud said some property owners are worried that reporting the business information required by the exemption application could expose them to legal liability if it doesn’t precisely match the income tax forms they file with a different branch of the revenue department.

“They don’t want to be brought up on some type of fraudulent charge,” Sinrud said.

Landlords can apply for the exemption at homestead.mt.gov, where forms ask for information on annual rental income, annual expenses and monthly rents. Tenants can also check their landlord’s application status via a lookup tool on the revenue department website.

The applications to exempt long-term rentals from higher tax rates are required as part of the second-home tax, passed by lawmakers and Gov. Greg Gianforte last year. That legislation sets higher default tax rates on residential properties, but reduces rates for properties that qualify either as owner-occupied principal residences or long-term rentals.

Supporters intended to offer tax relief for housing being used as homes for Montana residents, offsetting that relief with higher taxes on second homes and Airbnb-style short-term rentals.

In response to inquiries from MTFP, the revenue department said in a Feb. 19 email that it had received applications for long-term rental rate exemptions for about 19,100 properties associated with roughly 31,700 living units. Another 4,000 to 5,000 paper applications were still pending, the department said.

In comparison, data from the U.S. Census Bureau estimates that Montana has about 147,000 units of renter-occupied housing. If each of the pending paper applications represents one housing unit, that leaves about 110,000 renter households unaccounted for — nearly three-quarters of the state’s rental stock.

The census data doesn’t align precisely with the property designations the state uses for tax purposes, but revenue department officials, who have cited similar census data in the past while assessing the tax system, declined to provide MTFP with an alternate figure for the number of likely eligible rental properties. The state’s tax code hasn’t previously required the department to keep tabs on which residential properties are and aren’t being used as rental housing.

Sinrud, with the Montana Landlords Association, also said that the second-home tax law and department application materials don’t line up with some landlords’ specific circumstances, such as when people rent out rooms or housing units on the same property as their primary residence.

“There are dozens of different scenarios that this bill didn’t cover,” he said.

In contrast to rentals, the new law has automatically qualified most owner-occupied homes for “homestead” treatment after successfully applying for the property tax rebates issued by the state last year.

In response to questions from MTFP, the revenue department said that it had granted primary residence exemptions already to about 230,300 properties and had 9,076 more applications pending as of Feb. 19. Primary residences also face a March 1 application deadline.

Given the complexity of the state’s property tax system, it isn’t yet clear how tax bills will shift for individual properties that do or don’t qualify for lower rates. A preliminary analysis by the revenue department last year indicated that an average home that isn’t exempted from the second-home tax as a principal residence or rental could see its tax bill rise by 50% between 2025 and 2026.

Mara Silvers contributed reporting.

The post Many Montana landlords haven’t filed to avoid second-home tax appeared first on Montana Free Press.

Three prominent Republicans filed a lawsuit Wednesday asking a judge to invalidate one of the two bipartisan bills that reduced 2025 property taxes for many Montana homeowners. They argue the legislative sausage-making that brought the bill to the desk of Gov. Greg Gianforte last year violated procedural requirements in the state Constitution. 

The three plaintiffs are Senate Taxation Committee Chair Greg Hertz, R-Polson, Senate Majority Leader Tom McGillvray, R-Billings, and former state Sen. Keith Regier of Kalispell, the father of Senate President Matt Regier. Hertz and McGillvray were part of a faction of legislative Republicans who opposed the legislation. All three say in their court filing that it increased their 2025 property tax bills or will raise their 2026 tax rates.

“I’ve heard from many of my constituents who are suffering from the tax shift these bills created,” Hertz said in a Wednesday statement announcing the lawsuit. “Lifelong Montanans are struggling to figure out how they’re going to afford to pay their massively increased property taxes, and many will likely have to resort to selling their homes and cabins that have been in their families for generations.”

If successful, the court challenge could yank the state back to its 2024 tax system, reversing changes that cut tax bills for many property owners and raised them for some others last year — and likely propel the Legislature into another round of politically fraught tax debates when it meets in 2027.

The two intertwined property tax bills passed by the Legislature in 2025, Senate Bill 542 and House Bill 231, sought to rework the state’s property tax system to offer relief to comparatively modest residences by raising taxes on higher-value homes and business properties. Starting this year, the legislation also applies higher tax rates to second homes, Airbnb-style short-term rentals and other properties that aren’t being used as principal residences. 

The general policy approach was championed by Gianforte, a Republican, during his 2024 re-election bid as a response to widespread angst over years of rising residential tax bills driven partly by rapid increases in Montana home values through the COVID-19 pandemic. Proponents argued that pushing higher tax bills on luxury properties and second homes, which are often owned by nonresidents who don’t pay Montana income taxes, is a fair way to provide tax relief for middle-class homeowners without forcing cuts to property tax-funded local government services such as schools and law enforcement.

As specific implementation details were debated by last year’s Legislature, though, the prospect of lowering taxes on some taxpayers by raising them on others split Republicans, drawing vehement ire from the party’s right wing.

The tax legislation’s architect, Conrad Republican Rep. Llew Jones, overcame that opposition by working with minority Democrats, ultimately shepherding the two bills through the Legislature with bipartisan support. Procedural maneuvers he employed along the way, however, drew condemnation from the policy’s opponents during the session and now form the basis of the new lawsuit.

At a point in the legislative session where HB 231, the initial implementation bill, appeared to be stalled by its opponents, Jones worked with other lawmakers to clone most of its provisions into SB 542, which had passed the initial stages of the legislative process as a largely unrelated property tax measure. As part of that rewrite, Jones and his allies added provisions allocating $90 million for $400 property tax rebates in what he acknowledged during a committee hearing was an effort to draw additional support.

The plaintiffs, represented by former Republican lawmaker Matt Monforton, are seeking to overturn SB 542 on the basis that they believe those actions violate two provisions of the 1972 Montana Constitution: a requirement that bills aren’t fundamentally altered mid-process to change their original purpose and another that non-budget bills address only a single subject.

“SB 542’s supporters did exactly what the Constitution forbids,” the plaintiffs write in their court filing. “They took a dying, 40-page property tax rate restructuring bill — one that the House Speaker himself called a ‘Frankenstein’ bill — and bought its passage by bundling it with an appropriation for $90 million in one-time cash rebates.”

Montana courts have occasionally invalidated bills for violating the state Constitution’s procedural guardrails. A 2021 campaign finance bill sponsored by Hertz, for example, was successfully challenged over last-minute additions that regulated judicial recusals and political activity on college campuses.

The new property tax case, filed in Gallatin County District Court, doesn’t ask the judge to invalidate HB 231, the initial implementation bill, which contains similar language but was largely superseded by the challenged sister bill. As a result, it’s difficult to say what the effect on taxpayers would be if the lawsuit is successful, though Hertz said in a Wednesday interview he doesn’t think any outcome will claw back rebates or require tax officials to recalculate last year’s tax bills.

“I can’t imagine a judge is going to require rebates to be pulled back and so forth,” Hertz said.

Instead, Hertz said he hopes that the court will ultimately order Montana back to its 2024 tax code starting this year, teeing up an opportunity for the 2027 Legislature to take another crack at fixing the property tax system with approaches he considers better legislation. He also says he hopes a court ruling will discourage future legislators from playing fast and loose with constitutional procedural requirements.

Jones argued Wednesday that the homeowner rebate was integral to the overall legislation because it was administered in a way that helped state tax officials compile a list of homes that should qualify for preferential tax treatment as primary residences. He also said that the case could result in higher tax bills for many property owners.

“This puts at risk a whole lot of average Montanans that are a whole lot better off,” Jones said.

Gianforte’s office made a similar argument in a statement provided by spokesman Sean Southard Wednesday.

“If Senate Bill 542 is struck down, property taxes for Montana homeowners will increase significantly,” the governor’s office said.

Figures produced by the Montana Department of Revenue indicate that last year’s tax code changes saved median homeowners hundreds of dollars a year in most of the state’s 56 counties. The department also estimated that homes worth less than $1.7 million typically benefited from lower effective rates as a result of the legislation — though many lakefront homes and other high-value properties have seen their bills increase.

The lawsuit’s complaint says that the annual tax bill on Hertz’s principal residence, for example, increased from $14,000 to $21,000 a year — a 50% increase — “as a direct result” of the tax legislation. State records indicate the property, on the shore of Flathead Lake outside Polson, was valued at $2.9 million in 2024.

The complaint says that the other two plaintiffs, McGillvray and Regier, both own cabins that will be taxed as second homes starting this year. State property records indicate that those properties are valued at $549,000 and $1.1 million, respectively. 

Hertz said Wednesday that he has solicited donations to cover the cost of the litigation, routing them through a 501(c)(4) political committee. An email obtained separately by MTFP indicated that he had estimated the cost of the litigation at $25,000 to $50,000 and that the donations would be routed through Montana Policy Action, which Montana business filings indicate is managed by Republican political strategist Jake Eaton. 

Hertz declined to share the names of the lawsuit’s financial backers Wednesday, saying some of them were concerned about retribution.

Tom Lutey contributed reporting.

The post Lawsuit challenges second-home tax appeared first on Montana Free Press.

This article, initially published in May 2025, was updated and expanded in December 2025, after the year’s fall tax bills went out.

In an effort to lower property tax bills for homeowners and landlords who offer long-term rental housing, the state Legislature and Gov. Greg Gianforte passed landmark tax relief legislation in 2025. As the new policy comes into effect on 2025 and 2026 tax bills, it is scaling back taxes on most houses being used as primary residences while offsetting those cuts with higher taxes on most other residential properties.

With the complex legislation the subject of ongoing political debate,an initial wave of changes on 2025 tax bills appears to have reduced charges for most Montana homes, covering the difference in part by raising bills for higher-value real estate and large businesses. Starting in 2026, the Montana Department of Revenue will also implement a second-home tax aimed at shifting additional taxes onto homes that aren’t being used as residences.

Since the tax legislation was signed into law in May 2025, MTFP has fielded many, many questions from readers. We’re compiling the most frequent ones — and the best answers we currently have — below.

We’ll update this article periodically as other questions roll into our inboxes and as officials release additional information on how the specifics of the new tax policy will work. As always, we’d love to hear comments and questions at news@montanafreepress.org.

Q: When will the second-home tax take effect?

Interim rates lowered taxes for many residential properties on the tax bills sent by county treasurers this fall. However, the second-home tax won’t be implemented until 2026 tax bills, when it will raise taxes on most residential properties that don’t qualify for a “homestead” exemption.

Proponents had initially wanted to make the second-home tax effective in 2025, but added provisions for an interim year after negotiations dragged into the final days of the legislative session, delaying work the revenue department would have needed to do to implement the full policy in time for fall 2025 tax bills.

Q: How does the second-home tax work?

The policy adjusts the rates that determine how much of a home’s appraised market value is fed into the remainder of the property tax formula as “taxable value.” Interim rates for 2025 generally dialed down how much home value is taxable for lower-value residences and generally dialed up how much is taxable for higher-value ones, shifting tax bills accordingly.

As the second-home tax takes effect on 2026 bills, the rates will change again. Resident housing that qualifies for homestead treatment will be taxed at lower rates and a higher “default” rate will apply to other residential property.

Q: What makes a property eligible for homestead treatment?

A: The lower rates are available for residential property with two types of owners: Homeowners who live in their homes at least seven months a year and landlords who rent homes out on long-term leases for at least seven months a year. Long-term means leases that last at least 28 days at a stretch, like the leases used for resident rental housing but unlike the typical terms for Airbnb-style short-term rentals.

Q: Will there be more property tax rebates?

Probably not unless new rebates are authorized by the 2027 Legislature. The 2025 Legislature authorized $400 rebates, which homeowners could apply for this summer and fall. Those followed $675 rebates the Legislature authorized for homeowners in each of 2023 and 2024.

The 2025 Legislature also set up a complex state trust fund that is designed to ultimately steer some additional money toward future homeowner property tax credits, among other causes, but it isn’t clear how long it will take that program to come to fruition.

Q: Do I need to apply to avoid paying the second-home tax?

Yes — but most homeowners who received a 2025 tax rebate have been automatically qualified. 

When it takes full effect in 2026, the new law will assess higher taxes on any residential property that doesn’t qualify for the homestead exemption. Landlords and homeowners who haven’t received a rebate will need to apply to the revenue department for the exemption that will qualify them for lower rates.

Once homeowners are qualified for the homestead exemption, they will remain qualified until they sell the property, move elsewhere or apply for a homestead on a different residence. Landlords will need to periodically reapply to certify properties are still being used as long-term rentals.

The revenue department has published an online tool that lets property owners check their enrollment status.

Q: How do I apply?

Application forms, both hard copy and online, are available along with additional instructions at homestead.mt.gov. The new law specifies that the application deadline for 2026 tax bills will be March 1, 2026.

The applications ask property owners to formally declare that they’re using a property as either a principal residence or long-term rental. Landlords looking to claim a 2026 exemption for a long-term rental property are also asked to detail their annual rental income and expenses, as well as the monthly rental rates they charged in 2025.

If the department discovers a taxpayer has fraudulently claimed the benefit, the law specifies that they can be penalized for three times the amount they saved and be subjected to potential criminal prosecution under a state law that can result in a $500 fine and a jail term of up to six months.

Eligible homeowners who fail to apply for the homestead rates initially may be able to receive refunds if they appeal successfully after receiving higher tax bills. The department said in January that fallback option isn’t available to landlords. 

Q: What about properties owned through trusts or LLCs?

The revenue department says that the homestead treatment is available to owner-occupied properties owned by individuals, couples or revocable trusts. It says homes owned by other types of entities, such as limited liability corporations or irrevocable trusts, aren’t eligible.

However, any property that meets the long-term rental requirements can qualify for homestead treatment regardless of ownership status, making that a potential option for homes with non-qualifying ownership structures.

Q: I’ve heard there’s an exception for homes on agricultural land?

Yes. The tax package’s long-term rates leave residential structures on agricultural land at their 2024 taxable value rates regardless of whether they qualify as principal residences, an exemption intended to shield worker bunkhouses and other secondary residences in farm complexes from the second-home tax. That provision also means that second homes — including many high-value ones — located on qualified agricultural properties will be partially shielded from the second-home tax.

Separately from the second-home tax debate, revenue department officials and some lawmakers have expressed concern in recent years that it may be too easy to qualify undeserving properties for an agricultural status under current law, a process that currently requires reporting only $1,500 a year in agricultural income. A bill that would have tightened the qualification requirements for the agricultural designation, introduced separately from the property tax relief package, failed to pass the 2025 Legislature.

Q: What if I run an Airbnb out of part of my home? Will that keep me from qualifying for the homestead exemption?

This gets tricky. The revenue department has said it intends to calculate taxable values for properties containing more than one dwelling on a unit-by-unit basis.

That means that, for example, if you have a property with two homes on it and live in one of them, you can qualify for a homestead exemption on the value of the home you live in as a primary residence. If the other home on the property is used as a long-term rental, you could also qualify for the lower rates on it — but you’d have to apply separately.

If, conversely, the second house is being used as a non-qualifying Airbnb, you’ll likely have to pay higher rates on the corresponding portion of your property value — but would remain entitled to the homestead exemption on the value associated with your home structure.

Residential properties that combine multiple dwelling units in combined structures, such as fourplexes and attached “mother-in-law” units, will in theory receive similar treatment.

Q: Will family cabins pay the second-home tax?

A: Unless they qualify for the homestead reduction, yes. The new law doesn’t distinguish between family cabins owned by Montana residents and luxury real estate owned by out-of-state residents.

Q: Why doesn’t the second-home tax apply only to out-of-state residents?

Because that would likely be struck down by the courts as unconstitutional discrimination. As legislative attorneys studying tax issues for lawmakers have noted in the past, the U.S. Constitution includes several provisions that have been interpreted as limiting how much power states have to discriminate against nonresidents, particularly with regards to freedom of movement and economic activity. For example, a 1975 ruling by the U.S. Supreme Court barred New Hampshire from imposing higher income taxes on nonresident commuters.

There is some legal nuance involved — the Supreme Court, for instance, ruled in 1978 that Montana can charge nonresidents higher hunting license fees because hunting is a recreational activity involving a state-owned resource. Even so, most legal analysts seem to think lawmakers are on much firmer ground with taxes by pegging their definitions to how much time a property owner spends living on or renting a given property, rather than their state of residence.

Q: What if I rent my family cabin to my spouse? Is that a loophole?

It might be. The revenue department appears to be getting this question often enough that it addresses it in its official FAQ for long-term rental properties.

The department’s answer stresses that it has the power to reclassify properties or even levy fines in response to applications it deems to be fraudulent, but also notes that the law doesn’t actually specify a minimum rent amount necessary for rentals to qualify for an exemption.

The takeaway? Try renting your cabin to a spouse for a dollar a year and you might draw some unwanted attention from the state. But charge them something closer to market rate and you might be able to squeak by, at least until the Legislature does some tax loophole cleanup.

“If you rent the property for a reasonable amount, you should be fine,” the department writes.

Q: What if I have to live outside my home for work or medical care? Will that jeopardize my homestead status?

It shouldn’t. The department has drafted an exception to the seven-month residency requirement for “temporary absences” such as hospital admissions, military deployments or work assignments.

It isn’t clear how the department will define “temporary.” Gianforte, for example, is required by the Montana Constitution to “reside” at the seat of government in Helena until his term as governor concludes in early 2029, but has cited the “work assignments” exception as an explanation for his decision to claim a homestead classification for his longtime home in Bozeman.

Q: Will the tax relief force local government budget cuts?

No — at least in theory. The way the state’s property tax system works means that most local taxes “float” to collect a given budget amount. As such, tax bills will generally shift around so lower homeowner taxes are offset by higher taxes on other types of property, primarily businesses under the interim rates for this year, then a combination of businesses and second homes in future years.

The legislation also includes a provision intended to avoid short-term revenue reductions for taxes defined in terms of non-floating mills, a category that encompasses voter-authorized local taxes in some parts of the state.

The other wrinkle is that two of Montana’s municipalities, population-121,000 Billings and population-350 Sunburst, have provisions in their charters that could keep taxes from floating to accommodate the downward valuation shifts produced by the relief legislation. That’s caused particular angst in Billings, the state’s largest city, and spurred lawmakers to include a provision in the tax legislation that purportedly overrides those charters to keep revenues constant. It’s unclear, however, whether that override attempt would survive a court challenge, so the bill includes another provision specifying the state will backfill municipal revenues to 2025 levels if the override clause is struck down.

Q: Where can I read the full second-home tax legislation?

This is actually quite tricky. The new tax policy was passed as two conjoined bills with some redundant language and convoluted coordinating clauses for reasons that have to do with arcane legislative politicking.

If that doesn’t scare you off, start with Senate Bill 542 (text here). However, disregard SB 542’s sections 4 and 14, which were adjusted by provisions in House Bill 231 (its sections 29 and 27, respectively). Note that other coordinating language in HB 231 (its section 31) nullifies most of HB 231’s other contents to avoid redundancy with SB 542.

Q: I tried reading the bills and … how exactly do they provide me with tax relief?

We feel your pain.

Here’s a short answer: Lawmakers are adjusting statewide property tax rates to dial back how much of the overall property value  for homestead-eligible residential properties is classified as “taxable.” Montana’s property tax math translates your taxable value to your share of the collective bills for schools, roads, law enforcement and other local government services. So scaling down tax values for primary residences while boosting them second homes will shift taxes away from homeowners without defunding services.

The shift will also raise taxes for some large business properties — particularly in 2025, where the interim rates tried to offer relief to most homeowners without the extra second-home tax revenue that will be added to the pot next year. The measure does include a provision intended to limit the impact on smaller business properties. 

As for a longer answer? We wrote a lengthy illustrated guide trying to explain how the tax provisions work and why lawmakers thought they were necessary. You can read it here: How surging home prices nuked Montana’s property tax balance — and how a second-home tax might fix it. 

Q: How much will my taxes change?

Given the complexity of the Montana tax code (see that illustrated guide linked above), it’s hard to provide a meaningful answer to this question.

Initial projections from the revenue department estimated that, by the time the second-home tax is fully implemented in 2026, the average owner-occupied home will see taxes decrease by 18% and the average long-term rental property will see a 22% decrease relative to its 2024 tax bill. Conversely, those projections indicated taxes for the average home that doesn’t qualify for the homestead exemption would likely rise by 68%.

However, actual changes will vary place to place — and property to property — depending on factors including the composition of the local tax base and how specific counties, cities and school districts are managing their budgets.

Q: Where can I find more information?

The revenue department has several resources on its website, which are most easily accessed via homestead.mt.gov. Those include exemption application materials and FAQs specific to homeowners and long-term rental owners. The department has also developed administrative rules that address second-home tax details that weren’t specified in the original bills. Those rules, which are somewhat more readable than the full legislation, include several illustrative examples indicating how the department plans to treat properties in different situations.

MTFP has also published many, many stories on the tax measure. Those include charts showing how Montana property values have changed since 2021, the illustrated guide to the math behind the state property tax system, an analysis of how the interim rates shifted 2025 bills and a summary of the new administrative rules for the second-home tax provisions that take effect in 2026.

This article was updated Jan. 7, 2026, to clarify that an opportunity for qualifying property owners to receive the homestead tax treatment via an appeal after receiving their property tax bills is available to homeowners but not to landlords.

Have questions about the second-home tax and homestead? We’d love to hear from you — and plan to update this piece as new questions pop up and new information becomes available. Reach out at news@montanafreepress.org.

The post More questions and answers about Montana’s new second-home tax appeared first on Montana Free Press.

As 2025 closes out, Montana Free Press reporters are reflecting on the work they’ve done over the course of the year — and what they expect to be writing about heading into 2026.

Looking back at the headlines that have adorned my stories this year, there’s a common refrain: Property taxes.

To recap (not that you need it if you’ve been following along): The traditionally eye-glazing topic of tax policy has ended up one of Montana’s hottest-button issues in recent years, ever since the extraordinary home value growth in most parts of the state through the COVID-19 pandemic knocked the property tax system silly.

When the state Legislature met this year, lawmakers took a big swing of their own at wrenching the system back into some sort of politically palatable alignment, scaling back taxes on middle- and lower-value residences by, in part, boosting them for many high-value homes and large industrial properties. This year’s legislation also tees up another shift for 2026 tax bills, levying higher taxes on residential properties that aren’t being used as resident housing at least seven months a year.

Following the tempest-level legislative politics that swirled around the tax measure occupied much of my winter. The proposal, developed by House Appropriations Chair Llew Jones, R-Conrad, and backed by Republican Gov. Greg Gianforte, ran into so much opposition from hardline Republicans that its backers were forced to negotiate with minority Democrats for the votes necessary to bring it through the gale.

I then spent much of the remainder of the year trying, on the one hand, to explain how the measure is supposed to work and, on the other, trying to suss out whether its initial 2025 phase worked as intended. On the explanation front, I tried everything from a written Q&A to an illustrated in-depth guide and, as a Hail Mary of sorts, filming an Instagram video where I tried to explain things in terms that would outlast my dog’s attention span.

Along the way, I took a few detours — among them investigating a fancy mansion loophole in the state’s agricultural tax code, writing about the Montana Chamber of Commerce’s latest push for a statewide sales tax, and chipping in with other coverage like Helena’s mayoral election. I also discovered this month that Gianforte, who is constitutionally required to “reside” in Helena while serving as governor, has claimed a homestead exemption under his new tax law on his longtime home in Bozeman.

WHAT’S ON THE HORIZON IN 2026?

Heading into 2026, I’ll be keeping an especially close eye on that sales tax conversation, an idea that’s long been championed by Montana’s business leaders and long perceived as a political non-starter by most state-level politicians. I’ll also be, of course, following how the full-fledged second-home tax piece of this year’s legislation translates into next year’s bills.

And then there’s always the news you can’t see coming from the present, which I’ll be writing about as well.

The post The year on the tax beat and what’s next for 2026 appeared first on Montana Free Press.

As tax bills made their way to property owners across Montana this fall, anecdotal reports about the impacts of the state’s landmark 2025 tax legislation — or, at least, its initial phase — spilled into headlines: lower bills for many homeowners, higher bills for some apartment complexes and sizable increases for at least some high-end homes.

The reworked tax code was aimed at tackling years of frustration over rising residential tax bills. Given the complexity of Montana’s sprawling tax system, however, proponents, opponents and taxpayers caught in the middle had been holding their breath to see whether the measures would work as intended.

Gov. Greg Gianforte, citing data compiled by his revenue department, said earlier this month that the new tax measure — which the Republican campaigned on in concept while seeking re-election in 2024 — had resulted in tax cuts for 80% of homeowners. Other supporters, including the measure’s architect, Conrad Republican Rep. Llew Jones, have said that it’s working largely as intended: providing significant homeowner relief without shifting ruinous taxes onto farms and small business properties.

Opponents — including hardline Republicans who ended the 2025 legislative session feuding publicly with comparatively moderate colleagues who’d joined with Democrats to pass the property tax bills and other measures — are less upbeat. They continue to argue that the complex measure pushes unfair increases onto family cabins and dream homes.

The initial 2025 phase of the legislation rearranged the state’s property tax rates to impose heavier taxes on higher-value residences and deliver lighter bills to lower-value ones. A subsequent phase, a second-home tax that will further shift the burden onto residential properties that aren’t owner-occupied or offered as long-term rentals, kicks in next year.

So, what has the first phase of the seismic legislation actually done? Analysts at the Montana Department of Revenue have compiled a voluminous pile of data about the year-one effects of the legislation, passed as House Bill 231 and Senate Bill 542. That analysis, much of which was prepared at Jones’ request, was presented in part at a meeting of the Legislature’s Revenue Interim Committee Nov. 12.

Since that meeting, we’ve been combing through that data here at MTFP, working to identify its most notable takeaways. Here’s what we’ve found:

TAKEAWAY 1: Typical home tax bills are down by hundreds of dollars statewide

The department analysis looked at median-value residential properties in each of Montana’s 56 counties, estimating what their 2025 tax bills would have been with and without the new legislation. In most cases, it found that those typical savings amounted to hundreds of dollars a year.

The biggest savings were typically found in counties with the highest-value properties, places that also tend to have higher tax bills. The specifics, however, vary widely between different parts of the state depending on a variety of factors, including the composition of local tax bases and how much cities, counties and school districts collect to fund their budgets.

The department estimates, for example, that a median $685,000 residence in Gallatin County (around Bozeman) saw its 2025 tax bill reduced from $3,730 to $2,710 as a result of the legislation. That’s a savings of $1,020, or 27%.

The median $507,000 residence in Missoula County was valued lower than Gallatin County’s but paid a higher bill under the revised tax code, according to the department’s figures — $3,457. The department estimates that’s a $1,012 (or 23%) savings.

At the other end of the spectrum, typical residential tax bills in eastern Montana’s Carter County were reduced by only $157, the department estimates. That’s in part because, in a rural county where homes are worth less and most local services are paid for by taxes on oil pipelines, residential taxes are much lower than in western Montana’s urban counties — only $249 on the median residence after the 2025 legislation.

Savings in other urban counties were smaller than those in Gallatin and Missoula but still substantial, typically representing about 30% of unadjusted tax bills: $757 in Billings’ Yellowstone County, $681 in Great Falls’ Cascade County, $809 in Kalispell’s Flathead County and $807 in Helena’s Lewis and Clark County.

TAKEAWAY 2: High-value properties got higher bills

For the most part, the tax legislation operates by shifting tax burden instead of cutting into the local collections used to pay teachers and fund police departments. As a result, lower bills for homeowners with modest properties mean others have to pick up the tab — among them, people who own high-value homes.

The somewhat complex chart, prepared by revenue department analysts and annotated by MTFP in orange, illustrates how bills shifted for properties at different points on the statewide value spectrum:

The light gray bars indicate the value distribution of Montana’s 335,000 residential properties. Most of them are valued around the statewide median, $378,000, while a long tail of a few higher-value properties stretches out toward the right side of the chart, which cuts off at $2.5 million (there are, of course, residential properties in the state valued at more than that).

The black lines represent the effective tax rate — the fraction of appraised property value that has ended up subjected to taxes — at each point along the value distribution. This line is jagged because the actual math used to calculate tax bills is complex.

The dashed line indicates what effective rates for 2025 bills at different value points would have been without this year’s legislation, and the solid line indicates what the effective rates actually were. The analysis indicates that residential properties valued below about $1.7 million typically saved money as a result of this year’s tax changes, while higher-value properties paid more.

Note that these figures compare what 2025 bills would have been with and without the legislation, not how 2025 bills compare to 2024 bills. In some cases, property owners who saved money under the legislation may have seen their tax bills rise this year regardless, just not as much as the bills would have risen under the prior tax code.

A separate tally by the department estimates that, as a result of the legislation, 80% of residential properties saw their tax bills decrease versus last year, with 11% seeing increases. If legislators had left the state’s tax code unchanged, it estimates that 62% of bills would have increased and only 13% would have decreased.

TAKEAWAY 3: Some apartment buildings were hit by higher bills intended for high-end homes

Among the unintended consequences of the legislation, which was heavily amended in the final days of this year’s legislative session as proponents maneuvered it around political opposition, is a spike in tax bills this year for some multi-family apartment buildings.

Lawmakers included a provision in the interim 2025 tax rates that was intended to keep large, high-value apartment buildings from being taxed like mansions, specifying a reduced rate for multi-family properties worth more than $2 million. However, that provision wasn’t properly aligned with the rest of the legislation, where the highest 2025 rate tier for residential properties kicked in at $1.5 million. The result appears to have been unintentional tax bill boosts for some apartment owners, raising the possibility that landlords may raise rents accordingly.

An analysis by the revenue department indicates that the legislation typically raised bills for multi-family properties such as apartment complexes valued above the legislation’s $1.7 million residential break-even point. However, it generally lowered effective tax rates for comparatively modest multi-family housing such as duplexes.

As is the case with the earlier chart reflecting all residential properties, the black lines here indicate effective tax rates relative to the property’s market value. With market values surging across much of the state, a lower effective tax rate may not have produced a net decrease for a given property’s tax bill in 2025 relative to 2024.

In any case, long-term rental properties should be eligible for lower tax rates starting next year, assuming their owners qualify the property for a long-term rental exemption via an application period that opens Dec. 1.

If you’re a tenant who is facing a rent increase that your landlord attributes  to rising property taxes, you can, in most cases, look up their actual tax bills — which are public records — via property tax information systems maintained by your local county.

TAKEAWAY 4: Small businesses were shielded from tax shifts

Lawmakers were also concerned that their efforts to lower homeowner taxes would spill over onto commercial properties, particularly ones owned by small businesses. As a result, they included provisions aimed at lowering taxes for less valuable commercial properties, similarly to how comparatively modest homes were treated.

The department’s analysis indicates that the commercial provisions included in the 2025 tax rates have generally had the intended effect. Commercial properties worth up to approximately $575,000 have benefited from lower effective tax rates this year, while higher-value commercial properties have paid higher rates.

TAKEAWAY 5: Agricultural land saw modest tax increases

The department also analyzed the impact of the legislation on two categories of agricultural land — grazing land and tillable non-irrigated farmland.

Residential and commercial properties are typically taxed based on the market value that the state revenue department thinks they could sell for. Agricultural land, in contrast, is taxed based on its estimated value for producing crops or livestock, a system that typically provides steep discounts to farmers and ranchers (as well as recreational properties where owners have secured agricultural designations).

The department’s analysis indicates that both categories of agricultural land it looked at saw fairly modest tax bill increases under this year’s tax legislation. The typical annual bill for 1,000 acres of grazing land increased by $39 to $618, a 6.3% increase, it concluded. The typical bill for 1,000 acres of non-irrigated tillable farmland increased $173, or 5.2%.

TAKEAWAY 6: And big increases fell on big business

The legislation’s other notable impact is boosting annual bills by millions of dollars for the state’s largest industrial companies.

NorthWestern Energy, the gas and electric utility that is Montana’s single largest taxpayer, is paying $23 million more on its power line infrastructure and $3.4 million more on its generating assets this year than it would have under the prior tax code, according to the department’s analysis.

Similarly, BNSF Railway is paying $6.7 million more on its holdings, and CHS, which operates a refinery in Laurel, is paying $1.9 million more. Also paying higher tax bills are the Express Pipeline, which transports Wyoming-bound crude oil from Canada, eastern Montana operations of natural gas company Oneok, and Phillips 66, which operates an oil refinery in Billings.

(The department’s analysis, presented as a breakdown for the state’s 10 largest taxpayers, treated divisions of some companies as separate entities. As such, these figures may exclude portions of those companies that didn’t crack the list of the state’s top-10 taxpayers by size.)

Expected tax shifts onto large industrial properties were part of the reason the tax legislation drew vocal opposition from business lobbyists. Supporters countered that many large businesses had seen their tax bills decrease in prior years — in part because the state’s skyrocketing home values had previously pulled tax burden from industrial properties onto residences.

NorthWestern, for example, saw taxes on its power lines drop by $31 million between 2022 and 2023. As a result, even with a hefty increase this year, the taxes the company pays on its transmission and distribution grid have grown by a comparatively modest $4.7 million since 2021 — an increase that represents a growth rate slower than inflation. (State utility regulations have the company treat its property tax bill as a pass-through cost when calculating customers’ electric bills.)

Note that in some situations, tax bills are also influenced by factors beyond the state’s tax policy, such as companies expanding or shrinking their holdings. BNSF, for example, has assimilated Montana Rail Link in recent years. State assessors pegged the market value of BNSF holdings at $3.0 billion in 2025, versus $2.1 billion in 2022.

Have questions about the property tax legislation? Drop us a line at news@montanafreepress.org. We’re compiling them so we can update an FAQ on the tax legislation we published previously.

The post 6 charts showing how Montana’s big legislation shifted 2025 property tax bills appeared first on Montana Free Press.

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%.

In effort to illustrate the various dynamics at play, MTFP also previously modeled how the changes would affect homes in a hypothetical tax base.

WAIT — HOW DID HIGHER TAXES FOR FANCY HOMES GET THROUGH A GOP-CONTROLLED LEGISLATURE?

Years of surging home values — the typical Montana home value grew 66% between 2021 and 2025 — threw the state’s property tax system into disarray, generating widespread frustration as residences picked up a greater share of property tax bills. Heading into this year’s legislative session, lawmakers expressed near-universal bipartisan desire to tackle the issue. 

The measure that survived the legislative gauntlet was workshopped through Republican Gov. Greg Gianforte’s property tax task force and championed by House Appropriations Chair Llew Jones, R-Conrad. It was passed by a coalition of comparatively moderate Republican and Democratic lawmakers over opposition from elements of both parties. 

Because Democratic votes were necessary to keep the bill advancing, minority Democrats were able to negotiate some parts of the bill to be more progressive than the initial proposal. 

WHAT ARE THE POLITICIANS SAYING NOW?

Hardline Republicans, who balked at the prospect of raising taxes on some taxpayers to lower bills for others, have been particularly vocal critics of the tax legislation. Coming out of the session, a steady stream of opinion columns indicates that debate over the measures is likely to play a major role in next spring’s GOP legislative primaries.

Critics have seized on an apparent drafting error made during last-minute legislative wrangling that has apparently resulted in higher 2025 taxes for some apartment buildings — increases that could be passed onto tenants. They’ve also complained more generally about the policy’s complexity and worried about raising taxes on vacation and retirement homes owned by longtime Montana residents.

“The bill was rushed and broken, but Democrats and a handful of self-identified ‘Republicans’ got it over the finish line at the last minute,” Senate Finance and Claims Chairman Carl Glimm, R-Kila, wrote in a Nov. 8 opinion column published by the Missoulian. A screenshot of the column was shared by the state Republican party’s official Instagram account.

Jones and other supporters have argued that the new law’s complexity — including a multi-bracket system that specifies higher tax rates for high-value homes and lower rates for modest ones — provides fairer treatment for a wide array of properties across Montana’s wildly disparate real estate markets. 

Supporters have cited data from the revenue department indicating that temporary tax rates used this year lowered bills for the vast majority of residential properties. The department estimates that a median Montana home valued at $378,000 paid about $880 less in taxes this year than it would have under the prior law.

In a Nov. 12 statement, Gianforte said the new rates have cut taxes for 80% residential property owners.

“Our focus has been securing meaningful, long-term property tax relief for Montanans in the place they call home, and we’ve delivered,” Gianforte said. “The data make it clear that these reforms are a win for Montana homeowners.”

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.

The post Have a backyard Airbnb? Proposed rules say Montana’s upcoming second-home tax will hit it. appeared first on Montana Free Press.

Skyrocketing home values and ensuing property tax shifts have caused widespread anxiety across Montana in recent years, spurring lawmakers to pass a landmark second-home tax intended to lower taxes for resident homeowners and landlords who lease out long-term rental properties.

Both Montana’s existing property tax code and the relief package that made it through the legislative sausage grinder this year are bafflingly complex, perplexing many Montanans who would like to understand the mechanics behind a law that is supposed to lower — or raise — their tax bills.

This piece is an effort to bring clarity to that confusion.

MONTANA’S TAX MATH

It’s easiest to think about the property tax system in terms of a town with just a few properties, as opposed to the tens of thousands in even mid-size Montana jurisdictions.

Here’s how tax bills would be calculated in a hypothetical community with eight houses, two businesses, some farmland and some industrial property. It’s roughly what Montana’s property tax landscape would have looked like in 2020 scaled down to a handful of parcels. We’re going to call it the Town of Exampleville:

Property values are assigned by the Montana Department of Revenue. For residential property, they reflect the department’s estimate of what the property would theoretically sell for. Those market values are then translated into taxable values via rates specified by the Montana Legislature. The calculations can be done either property by property or for a particular property class lumped together.

The taxable value, essentially the share of each property’s market value that’s subject to taxation, is generally a few cents for each dollar of market value. The total taxable value for all property in a given jurisdiction is its tax base — the pool of value a local government’s leaders can draw on to fund its operation.

The residential properties in our Exampleville tax base represent just over half of the town’s taxable value. That’s on par with what Montana looked like at the start of the COVID-19 pandemic era in 2020.

The next step in the tax math is using the taxable values to generate actual tax bills, factoring in both statewide and local property taxes. Those calculations are easiest to follow for a single home. We’ll use one valued by the state at $225,000, which was approximately the statewide median as of 2021:

For this illustration, we assume that the home and the other properties in our tax base pay 95 mills of statewide taxes and support an Exampleville town budget that requires a $40,000 a year in property tax revenues. In reality, most taxpayers also pay some additional state-level taxes and cover a share of the local taxes for overlapping school, county and municipal tax jurisdictions, but we’re doing our best to keep things simple.

The taxable value is important in two ways. First, it’s used to calculate statewide school funding taxes, which are defined in terms of “mills.” Each mill produces a dollar in taxes for each $1,000 in taxable value.

Second, the taxable value is used to assign a property its share of the local tax base. That share is also the share of the local government budget its owner is responsible for paying.

A house with a taxable value representing 1% of a small town’s tax base, for example, ends up responsible for 1% of the town’s tax collections. Similarly, a large industrial facility that represents 10% of a town’s tax base is responsible for paying 10% of the town’s tax collections.

Under the 1.35% taxable value rate in effect in 2020, a $225,000 house has a taxable value of slightly more than $3,000. That is 4.5% of the Exampleville tax base. 

Voter-approved local taxes are sometimes specified in terms of mills instead of dollar amounts, in which case their math works like statewide taxes. County treasurers also use mills in their calculations when they combine tax obligations from multiple jurisdictions to produce the tax bills mailed out each fall. 

But it’s generally easier to think about local taxes — the main contributor to most property tax bills — in terms of tax base share rather than mills. The key concept to keep in mind is that the greater your property’s taxable value, the greater your share of the local school or sheriff’s office budget.

NUKING THE TAX BALANCE

The market value of homes across Montana has shot up since the start of the pandemic, dropping a financial bomb on the prior tax balance.

The median residential property value as assessed by the state revenue department increased 35% during the 2023 reappraisal cycle, followed by a 22% increase in this year’s reappraisal cycle. Combined, that makes for a 66% increase in the median home valuation in four years — a seismic jump.

That sudden shift follows decades of slower movement that have made the property tax system increasingly dependent on residential taxpayers. The residential share of the Montana tax base in 2021, 52%, was already up from 35% in 1996.

Other dynamics have also tugged at the tax system in the pandemic era. Valuations for many commercial properties are also up by double-digit percentages in recent years, for example. Additionally, the real-world tax picture is further complicated by local government budget growth and the addition of newly built homes to tax rolls.

For clarity in our neat little model, we’ll look at what happens to tax bills if the only change is the 66% value increase clobbering existing residential property owners:

Higher values mean a bigger share of taxes for the eight homes in Exampleville, which now represent 65% of the tax base rather than 53%. That means they’re now responsible for nearly two-thirds of the property taxes, as opposed to half.

That’s enough of a shift to produce a whopping 29% increase to each residential tax bill.

In comparison, commercial, agricultural and industrial properties see notable savings because they now represent a smaller share of the tax base — even though their valuations haven’t changed.

Here’s how the specific math works out for one of Exampleville’s $225,000 homes. After 66% value growth, it’s now valued at $373,500, which is a touch less than the real-world Montana median as of 2025:

The extra $148,500 in market value bumps up the home’s taxable value, boosting the mill-based statewide taxes proportionately. It also increases the home’s share of the town tax base, meaning it picks up a bigger portion of the taxes that support the Exampleville budget.

That double-whammy produces a combined tax bill that’s $605 higher — even though the statewide millage rate is unchanged and the town budget hasn’t grown by a single penny.

Similar dynamics have played out in real-world Montana, causing consternation for taxpayers, local government officials and state lawmakers. A MTFP analysis of data from the state revenue department concluded that, in 2023, a 40% increase in the market value of residential properties helped produce a 21% increase in taxes. Many homeowners — particularly those in fast-growing urban counties — saw even bigger increases.

Those higher tax bills propelled property tax relief to a must-tackle issue for Montana policymakers as the state Legislature met this year. But, as it turned out, identifying a politically feasible solution was easier said than done.

RATE REBALANCING WHAC-A-MOLE

Many of the proposals debated in the Legislature this year involved reworking taxable value conversion rates, the dials that lawmakers can turn to shift how much tax burden falls on different types of property. Turn the prior 1.35% residential rate down to 1%, for example, and homes end up with lower taxable values — and, by extension, lower tax base shares and lower tax bills.

At least in theory, that makes it possible to rework the tax system to reset the balance when values for a particular type of property grow out of proportion to others. Here’s what it would look like to offset Exampleville’s 66% residential value growth:

Dialing the residential rate down by 66% to offset value growth returns the taxable values for residential properties to their original levels. As a result, it resets the tax base shares back to the prior balance — and resets both statewide and local tax collections.

Lawmakers considered several proposals this year that would have reworked taxable value rates along these lines. Because the real-world tax system also saw non-residential property values change, most proposals redialed rates for multiple property classes and used different rate numbers than the change we’ve shown here.

The challenge for those simple rebalancing fixes is that the real world includes much more variability than the highly simplified Exampleville model, creating complexity that doesn’t intersect cleanly with a one-size-fits-all rate rebalance.

For example, the revenue department’s mass appraisal algorithms try to take home size and condition into account, meaning they often generate different value growth estimates for neighboring homes. As a result, state-level rate redialing undercorrects for some individual properties and overcorrects for others. Additionally, the real estate markets and tax base compositions of many of Montana’s hundreds of far-flung taxing jurisdictions vary wildly from the statewide average.

That’s why the prospect of tinkering with statewide taxable value rates produced substantial angst at the Capitol this year, with opponents fretting about the potential to throw the tax system in certain parts of the state into further disarray.

While a rebalance calibrated to our model tax base represents a clean reset for the uniformly average community of Exampleville, it would overcorrect for a rural, agriculture-heavy tax base where home values have grown more slowly — pushing residential taxes below their previous levels, forcing a tax increase for other properties in turn:

With just 25% residential value growth in what we’re calling Farmville (modeled after Daniels County in northeast Montana), the 66% redial that works for Exampleville shifts Farmville’s residential properties to below their prior share of the tax base.

The result is lower tax bills for homeowners, but higher taxes for Farmville’s farmland, businesses and industrial property.

The policy challenge is more than hypothetical. Data from the state revenue department estimates that median home value growth across Montana’s 56 counties ranged from 19% to 130% over the past two reappraisal cycles. Add in hundreds of municipalities and school districts with their own taxing jurisdictions, and resetting tax shares via rate rebalancing starts to feel like a game of multidimensional whac-a-mole.

That headache prompted some lawmakers to propose measures that would simply buy down homeowner property tax bills by offering annual tax bill rebates. 

A $500 buy-down for homeowners would equate to a nearly 20% reduction for each $373,500 owner-occupied home in Exampleville, enough to essentially roll 2023 taxes back to 2022 levels. It would also produce a smaller 8% reduction for a higher-value $830,000 home, while leaving tax bills for rental properties and second homes untouched:

The upside of this approach is its simplicity, given that it wouldn’t touch the tax math for non-residential property. However, an ongoing rebate produces another conundrum: the money to pay for it has to come from somewhere outside the property tax system.

An analysis of one rebate bill proposed this year estimated that 230,000 primary residences would be eligible. A $500 annual rebate would translate to a $115-million-a-year expense for the state — more than twice the annual budget of the Montana Highway Patrol.

Many of the property tax relief proposals debated at the Legislature this year would have covered their cost by directly or indirectly tapping the state General Fund, which is primarily funded by state income tax collections and has been flush with cash in recent years. Gov. Greg Gianforte, who was advocating for a major income tax cut he signed in April, opposed using General Fund money to pay for ongoing property tax relief.

Another option for funding property tax relief is a general sales tax, levied either statewide or in specific localities. Montana already allows high-tourism resort communities to levy local-option sales taxes, and local leaders in some parts of the state have for years wanted the Legislature to broaden that authority.

Some prominent lawmakers and business leaders believe Montana, currently one of five states without a statewide sales tax, will eventually need that revenue to provide a long-term solution to the property tax crunch. But political figures including the governor, who earlier this year compared adopting a sales tax to eating a tapeworm, see a sales tax as prohibitively unpopular with the Montana public.

HOW THE SECOND-HOME TAX ‘FIX’ WILL WORK

After much wrangling at the Capitol this year, lawmakers settled on property tax legislation that combines higher tax rates for second homes and luxury properties with a “homestead” exemption that offers lower rates to most homes that qualify as principal residences.

The idea is that higher taxes on second homes and high-value properties can offset lower tax bills for the homes of resident taxpayers while minimizing how much burden is shifted to other classes of property. The package includes provisions intended to shield agricultural properties and smaller businesses from increases as rate changes shift taxes across property classes. 

The implementation details are — to put it mildly — complex. That’s partly because of how the measure tackles the rate-balancing conundrum, and partly because the revenue department determined it wouldn’t be able to implement the higher second-home rates this year, forcing lawmakers to specify interim rates for 2025 tax bills.

The legislation also offers a one-time $400 homeowner rebate, which homeowners can apply for through Oct. 1, 2025. But the heart of the policy is a suite of new taxable value rates, which spin many of the tax system’s existing dials while wiring in several new ones.

Here’s how the rate system will change in the coming years:

Montana’s prior tax code already had two dials for residential properties, applying the commercial rate to home structure value in excess of $1.5 million. Starting with an interim system for this year’s tax bills, though, the residential property math will feature rate tiers that look something like income tax brackets, where higher appraised values are converted to taxable values — and ultimately taxed — at higher rates.

That complexity will be bumped a step further come 2026, when a multi-tier system with generally lower rates will be applied to principal residences that qualify for homestead treatment. Other residences — second homes and short-term rentals — will have their rates dialed up to 1.90%.

Both the interim and permanent rates also apply a two-tier system to commercial property, a step intended to shield small business properties from taxes shifted away from homes. Agricultural land will also get a slight discount, and home structures on agricultural land, which are taxed as residential property, will be allowed to maintain their prior 1.35% rate regardless of occupancy status.

When the revenue department sent reappraisal notices to homeowners in real-world Montana this year, many saw the market value of their property increase, while its taxable value decreased. That’s because of the changes made to the 2025 tax rates. 

Broadly speaking, the new rates will lower taxes on modest homes by reducing their taxable values relative to high-value residences and second homes. Here’s how that math works:

Both modest and higher-value residential properties will typically see reduced taxable values under the interim rates coming into effect this year, regardless of their occupancy status — a 44% reduction in the case of a $373,500 home.

As the second-home tax and homestead exemption come into effect in 2026, residential properties that don’t qualify for the homestead treatment will see their taxable values bounce much higher. While the high-value home in Exampleville has a market value about three-and-a-half times that of the median home, its tax valuation under the new code will be nearly nine times as much.

Of course, how all this taxable value math translates into actual tax bills depends on the tax values assigned to a particular home and what’s happening with the properties around them. Here’s how the new rates for 2025 and 2026 would shift the tax shares for individual homes in Exampleville relative to what those shares were before and after the residential value spike:

The interim rates for 2025, which don’t distinguish between principal residences and second homes, provide most residential properties with substantial savings by shrinking their share of the pie. That resets the tax shares falling on other property classes to roughly what they were before home values spiked.

Then, once the full-fledged second-home tax rates kick in in 2026, the tax shares for residences that don’t qualify for homestead rates bump up substantially. The high-end second home in our model sees its tax share increase to 30% in 2026. The result of that heavier burden on homestead-ineligible residences is a reduction to tax shares for other properties.

Additionally, while the homestead-ineligible Airbnb rental in Exampleville is valued at $373,500, the same as most of the other houses, its tax share with the second-home tax applied is higher than an owner-occupied $830,000 house, meaning it picks up a slightly larger share of the town’s taxes. The Airbnb’s 2026 taxable value, $7,097, is 2.5 times that of a long-term rental with an equivalent market value.

The ultimate effect of the second-home tax, at least in Exampleville, is a major tax increase for the high-value second home — and lower taxes for everyone else. It’s unclear, of course, how accurately this highly simplified model can predict what will happen to tax bills in a given part of real-world Montana.

Readers who are curious about that might take a look at a prior MTFP story based on preliminary county-by-county projections from the revenue department. Statewide, those projections estimate that tax bills for owner-occupied homes will decrease by 18% on average over the next two years, while forecasting a 68% average increase for non-homestead residential properties. 

We should also note that the numbers we’ve used throughout this piece don’t account for a major factor that’s very real in many, if not most, Montana jurisdictions: growing local government tax collections driven in part by budget pressures stemming from inflation. Any extra amounts collected by local jurisdictions will eat into savings produced by the new rates — or load even higher bills onto properties that will be paying more.

Have more questions about the second-home tax policy, or how the property tax system works more broadly? MTFP has been maintaining a Q&A on how the tax system is changing and our team welcomes your questions and comments. 

Also, if you’re (ahem) the sort of person who wants to review the calculations behind the graphics in this piece, a spreadsheet with the math used to build them is available here.

The post In pictures: How surging home prices nuked Montana’s property tax balance — and how a second-home tax might fix it appeared first on Montana Free Press.