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. 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 [email protected]. 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 and landlords who fail to apply for the homestead rates initially may be able to receive refunds if they appeal successfully after receiving higher tax bills. 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. 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 [email protected]. The post More questions and answers about Montana’s new second-home tax appeared first on Montana Free Press. ...read more read less