If you are an Airbnb or VRBO property owner in Minnesota, your property taxes may be about to go up. This, of course, will impact how much you put in your pocket.
In May, the Minnesota Department of Revenue issued a memo asking county property tax assessors to offer guidance on how to classify residential properties that are rented on a short term basis.
The Department of Revenue’s recommendation was that short-term rentals that are not owner-occupied be deemed commercial properties and taxed as such.
As a result, county assessors are currently sending out questionnaires to owners of properties advertised as short term rentals to ask about the number of days you live there. If it doesn’t meet the threshold of being primarily used for your personal enjoyment, your property may be reclassified as a commercial property. This will change your property taxes significantly.
Here’s an example. A south Minneapolis duplex, which is Hennepin County has currently got a basis of $312,500 (which is set to go up significantly in 2020). It is currently taxed as residential homestead, which has a rate of 1% of the first $500,000 of value. So, annual property taxes without state or city fees are $4548.26.
Next year, when it is reclassified as residential non-homestead as it is no longer owner-occupied, it will be taxed at 1.25% of the first $500,000 of value for a total of $5671.65 in annual taxes. Again, excluding any state, city fees, etc. Apartment buildings for 4 units or more are taxed at the same rate.
As of now, the plan is short term rentals will be taxed at a commercial rate of 1.5% of the first $150,000 in value, and at a rate of an additional 2% of any value over that. This results in property taxes rising to $9693.43 which represents a 58% increase over the non-homestead classification.
The governor is said to be “reviewing” the situation. If you’re facing this tax hike, it would be a good idea to reach out to his office or your state representative and share your thoughts and position on the matter.