Residential property tax relief: Moving forward

It took 85 days but the 69th Legislative Session enacted two bills (SB 542 and HB 231) in the final hours to provide real, structural tax relief for residential property owners. The major provisions of the bills include:

1. Property tax relief is only available to Montana residents for their primary residence and for structures used as long term rentals.

2. Each eligible property owner will receive a $400.00 property tax rebate check from the state in the Fall of 2025.  

3. For tax year 2025 the current assessment rate of 1.35% of market value is replaced with a progressive three-tiered assessment structure as follows:

a. The first $400,000 of market value is assessed at 0.76%.

b. The next $1.1 million of market value from $400,000 to $1.5 million will be assessed at 1.1%.

c. The market value above $1.5 million is assessed at 2.2%.  

Tax year 2025 is a transition year with another and final assessment rate decrease to follow in 2026.  Starting in 2026, the assessment structure is tied to the statewide median home value currently about $360,000. That new assessment schedule will be:

1. The first $360,000 of market value will be assessed at 0.76%.

2. The next $360,000 is assessed at 0.9%.  

3. From $720,000 to $1,440,000 the assessment rate is $1.1%.

4. All value above $1.44 million will be assessed at 1.9%.

It is impossible to accurately forecast changes to the actual tax bill because the mill levies have not been set by the local government jurisdictions but levies will increase to offset the loss of taxable value created by the new tax legislation. Nevertheless, the Department of Revenue has projected an average tax reduction of about 24 percent in Deer Lodge, 27 percent in Granite, and 28 percent in Powell Counties.  

Residents with lower value homes will experience a greater percentage decrease in their tax bills than those with more highly valued properties.

But, it’s not all roses.  Any legislative act which reduces the property tax assessment rates will lead to increased mill levies unless the taxing jurisdiction reduces their operating budget in proportion to the assessment reduction – something which never occurs. As the mill levies increase, the property tax burden is shifted to other classes of property where the assessment rates were left unchanged, principally large commercial, industrial, and utility properties.  

The two tax relief bills contain lower assessment rates for agriculture land and small commercial businesses but the increase in mill levies is likely to cause these entities to see an increase in their total property tax bill ranging from 3 to 17 percent.

Finally, people who own two homes and those that use a home as a short-term rental will see a substantial tax increase on the second structure as the assessment rate increases from 1.35% to 1.9% (41 %) and that increase will be further compounded by an upward mill levy adjustment. Undeveloped residential lots also will be assessed at 1.9%

People with two homes will need to decide which home will be their principal residence.