T
aylor Swift's beach house in Watch Hill, Rhode Island has become a focal point for a new tax on second homes valued over $1 million. The state's measure, dubbed "The Taylor Swift Tax," imposes an additional surcharge of $2.50 for every $500 in assessed value above the first $1 million. This will add up to significant increases for luxury homes in Newport and other affluent summer communities.
Real estate brokers argue that this tax targets the very taxpayers who already contribute the most, as wealthy second-homeowners pay hefty property taxes but don't use many local services since their primary residences are elsewhere. They claim these individuals are being penalized simply because they also live somewhere else.
The tax hikes are driven by tighter state budgets and populist anger over housing costs. States like Rhode Island and Montana are looking to offset budget cuts expected from the new tax and spending bill in Washington, while also addressing the tale of two buyers: the middle class struggling to afford homes, and wealthy all-cash buyers thriving in the luxury market.
Rhode Island's conveyance tax on luxury real estate is also being hiked, starting in October. The tax on real estate sales will be an additional $3.75 for each $500 paid above $800,000 for a purchase. This has led some second-home owners to consider selling and potential buyers to pause their purchases.
Montana has passed a similar tax, which is expected to hike second-home taxes by an average of 68%. Brokers say some buyers are waiting to see the tax bills next year before making any decisions about whether to buy or sell. However, experts warn that taxing second-home owners may have the opposite impact – dissuading people from owning a second home in those communities.
The projected revenue from these new taxes may also disappoint. Los Angeles' "mansion tax," imposed on real estate sales over $5 million, has only raised $785 million after more than two years, despite initial projections of between $600 million to $1.1 billion per year.
