Transaction tax

How much tax will I pay if I rent out my Phoenix home for part of the year?

Every week, Mansion Global poses a tax question to real estate tax lawyers. Here is this week’s question.

Q. I am looking to buy a winter home in Phoenix and want to rent it out the rest of the year. What type of tax am I facing?

A. How much tax is paid on rental accommodation in Phoenix depends on the number of properties owned by the owner and whether the tenants are short or long term occupants.

Fees paid by owners of rental properties rented for 31 days or more are billed locally, according to Jordan Ayan, an Arizona-based agent at Launch Real Estate’s Lifestyle Collection.

“There is no standard state rental tax in Arizona, but most communities have a community tax that they charge, [although] currently Flagstaff and Tucson do not,” he said in an email. “So it becomes a bit complex to understand.”

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Not only do municipalities charge different rates on long-term rentals, but the number of properties owned by the person renting the unit is also an issue.

A person with one or two residential units “is not deemed to be in the rental business and is therefore exempt from tax,” according to the Phoenix tax code.

But if a property owner owns three residential properties statewide, or one residential property and one commercial property, they are liable for the tax. Additionally, a property manager or broker who manages residential rental units must pay tax on all homes in Phoenix.

Landlords are “required to obtain an Arizona Transaction Lien Tax License from the Arizona Department of Revenue for each location where residential rental income is taxable,” according to the state Department of Revenue.

Phoenix charges landlords a 2.3% rate on the gross income of properties they have rented for 31 days or more, according to the city’s finance department. The rate varies across the state (for example, in Scottsdale the rate is 1.75%).

However, “if the rental period is less than 29 days, they are taxed as they are considered transient accommodation,” Ayan added. Additionally, the state also charges a fee for this type of rental.

Phoenix’s tax rate for these properties is 5.3%, and the combined rate, including state and county taxes, is 12.57%, according to the city’s finance department. These taxes are due monthly, unlike annual property taxes.

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