Rhode Island’s new tax on high-end second homes took effect this month, and its nickname has drawn most of the attention. Known as the “Taylor Swift tax”, it’s inspired by the pop star who owns the most expensive house in the state, a $28 million estate in Watch Hill. The tax reaches thousands of other owners, most of them nowhere near famous. But for some of them, the bill is a real strain.
The official name is the Non-Owner Occupied Property Tax, and it applies to homes assessed at more than $1 million that the owner does not live in or rent to a tenant for at least 183 days a year. It’s essentially a surcharge on expensive vacation homes that stand empty most of the year. The rate is $2.50 for every $500 of assessed value above the first $1 million, which, as you can imagine, gets pretty pricey over time.
That means a property assessed at $2 million would owe roughly $5,000 a year, and one at $3 million about $10,000. Swift’s Watch Hill estate, which has been assessed at more than $28 million, would face an increase of around $136,000 unless it qualifies for an exemption. The state has identified around 8,000 non-owner-occupied homes that may owe the tax and has mailed notices to the owners, and it could even rise to $24.5 million in its first year. That income is meant for building affordable housing.
Those affected have a couple of options to avoid the tax. They can rent the home long-term for more than half the year, or run it as a registered short-term rental booked most of the year. With that in mind, there are loopholes to getting around paying the fees. So who’s really affected, and what will happen to them?
Who Ends Up Paying the Bill?
Of the homes expected to owe the tax, around 9 in 10 are assessed between $1 million and $5 million, not the $28 million range of Swift’s estate. Several belong to families who bought coastal property decades ago. For instance, Ed Burke, an 83-year-old who shares a nearly century-old Middletown cottage with his family, has a qualifying property. As it gets more expensive, as he told Bloomberg, “it may squeeze us to the point we have to sell.”
It’s a bit of a double-edged sword. Owners who never thought of themselves as wealthy have watched their assessments rise over the years. Exemptions offer a way out, but they come with strings. Turning the family cottage into a rented-out property for most of the year is not something every owner wants or can easily do. The surcharges quickly become just another expense from year to year.
The Fight Over Whether It Works or Not
Rhode Island has a severe housing shortage, and lawmakers see empty luxury homes as part of it. The tax is meant to push those homes back into use or to turn their owners into a source of funding for affordable housing. Backers frame it as asking the well-off to pay a bit more in a state where working families cannot find a place to live. Real estate groups see it very differently. They warn it could scare off high-end buyers, push part-time residents to sell, and put the squeeze on coastal towns that are already struggling.
The tax is projected to raise about $24.5 million a year. Some homeowners plan to fight it, and a law firm has said it will challenge the tax in court on constitutional grounds. Rhode Island isn’t the only state affected, either. New York City, Montana, and others have passed or floated similar levies on high-value or non-primary homes, part of a wider push to tax expensive property and steer the money toward housing. The first Rhode Island bills are due in quarterly installments starting in the fall, so this is just the beginning of the storm.