Montana’s second-home tax legislation reworked rates to shift tax burden off of most residential properties
By Eric Dietrich MONTANA FREE PRESS
We’ve heard from several Montana homeowners who are perplexed by the numbers on reappraisal notices mailed to them by the state Department of Revenue over the last month.
Those notices, for those unfamiliar, inform property owners that the department has updated the valuations used to calculate property tax bills, something it does on a two-year cycle. Here’s an example of a 2025 notice for a relatively typical home in Helena:
There are two key types of numbers to look at here:
- The assessed value, which, by law, represents the department’s effort to estimate the property’s full market value. For the current cycle, it reflects the estimated market value as of Jan. 1, 2024. In parts of the state where home values are increasing, this means the current number will likely be less than what you could sell the property for in mid-2025.
- The taxable value, which is the small fraction of assessed value used to calculate property tax bills. Note that this is not your estimated tax bill for reasons we’ll explain below.
Many homeowners we’ve heard from have expressed confusion about why their assessed value went up this year while their taxable value went down. Such is the case for the home shown above.
The answer has to do with the mechanics of the property tax relief measure passed by this year’s Montana Legislature — the legislation that, next year, will dial up taxes on second homes.
Historically, the state’s tax code has converted most assessed home values to taxable values at a flat 1.35% rate. So, unless you have a very expensive home ($1.5 million or more) or are participating in a property tax assistance program, you should be able to check that math on your numbers for the prior cycle.
Here, that calculation looks like $274,300 x 1.35% = $3,707. (The slight difference between the $3,707 figure the math gives us and the $3,703 on the form is probably due to the assessed value figure being rounded.)
Because market prices for housing in pretty much all of Montana have risen dramatically in recent years, odds are your home’s appraised value is up. If lawmakers had left the tax code alone, that would have meant a proportional increase to taxable value in most cases — and probably a higher tax bill.
Instead, they rejiggered the taxable value rates to shield lower-value homes from higher tax bills. This year, for example, assessed home values up to $400,000 are converted to taxable value at a 0.76% rate — a 44% decrease from the old one. (Because this home happens to be worth less than $400,000, you can check its post-reappraisal math using a simple calculation like the one we did above.)
As a result, while the above home’s valuation increased by 31% in this year’s reappraisal cycle, its taxable value still declined.
If you have a home valued at more than $400,000, the new taxable value math will be a little more complicated because lawmakers have set up a graduated rate system that applies higher conversion rates to higher home values to focus property tax relief on modest residences. The rates will also shift again next year as the full-fledged second-home tax comes into effect.
As for what your reappraisal notice will mean for your tax bill?
In general, the higher your taxable value, the higher your taxes will be. However, what your bill will look like when it comes to you from your county treasurer this fall will depend not only on your numbers, but also what’s happening with other properties in your area as well as the budgets set by taxing entities like your local school district.
Unfortunately, there’s not enough information on these notices to accurately estimate how all those factors will shake out. If you want to, you can apply your new taxable value to the prior year millage rate listed on these forms (each “mill” is $1 in taxes per $1,000 of taxable value). However, between new valuations, new taxable value rates and new local budgets, this year’s millage rate may be quite different from last year’s by the time all is said and done.
In reappraisal cycles past, the revenue department included an “estimated tax” field on these notices that made that calculation. Those numbers, though, were wildly inaccurate for most properties in 2023 because they failed to account for how most local taxes would “float” downward to offset broad-based residential value growth — spurring officials to leave them off this year’s forms.
A revenue department spokesperson told Montana Free Press last month that including those figures last cycle confused taxpayers for minimal benefit — and also said it would have been prohibitively complex to include a better estimate for 2025 millage rates on this year’s forms.
