Montana Just Raised the Property Tax Bill on Short-Term Rentals by 127 Percent. Here Is What Investors Need to Know Before They Run the Numbers.

The property tax bill on a median-priced Missoula short-term rental just jumped 127 percent. Missoula city officials confirmed through reporting by the Missoulian that the city’s fall 2026 assessment on a $507,000 second home or STR will reach $3,510, up from $1,542 the prior year. That $1,968 annual difference does not appear in any proforma written before the 2025 legislative session.

The increase is not the result of a new STR ordinance or a city council vote targeting vacation rentals. It is a tax reclassification driven by state law signed more than a year ago, now landing in real dollar amounts for the first time. Investors evaluating Missoula properties this fall need to rerun their numbers before they close.

What Montana Changed and Why It Matters Now

In May 2025, Governor Greg Gianforte signed House Bill 231 and Senate Bill 542. The legislation restructured how the Montana Department of Revenue classifies residential property for tax assessment.

Under the previous framework, most residential properties, including second homes and short-term rentals, were assessed at 1.35% of market value. The new law created a tiered structure for primary residences starting at 0.76% on the first $378,000 of value. That is a meaningful break for homeowners.

Second homes and STRs cannot qualify for the tiered structure. They are assessed at a flat 1.90% rate. The gap between 1.35% and 1.90% is where the tax increase comes from.

The Montana Department of Revenue confirms the 1.90% rate applies to all second homes and STRs beginning with fall 2026 bills. This is not local discretion. It is state law.

In Missoula, the state-level rate change compounds with city budget decisions. Missoula adopted its fiscal year 2027 city budget on August 17. County commissioners are scheduled to follow on September 3. Those decisions, layered on the new state rate, push the city tax portion on a $507,000 property from $1,542 to $3,510, a 127% increase.

The framing matters for investors. There is no new STR permit requirement attached to this. No cap on nights. No owner-occupancy mandate. This is the property tax system, operating exactly as the Montana Legislature designed it to, with fall 2026 bills as the mechanism.

The Missoula Math: A Worked Example

Here is what the numbers look like on a specific property.

Property value: $507,000 (median Missoula second home or STR)
City property tax, 2025: $1,542
City property tax, fall 2026: $3,510
Annual increase: $1,968
Monthly carrying cost increase: approximately $164

At a $200 average daily rate, recovering $1,968 requires approximately 10 additional booked nights per year. That calculation assumes the host is otherwise operating identically to prior years, with the only change being the tax bill.

StaySTRA data shows Missoula STRs running at an average daily rate of $248 and occupancy of 74% in June 2026. At $248 ADR, the math adjusts slightly: $1,968 divided by $248 equals roughly 8 additional booked nights. But June is a peak month. Missoula hosts face considerably lower occupancy from October through March. Investors building an annual model should use a blended ADR and occupancy figure, not peak-season performance.

StaySTRA data shows average monthly revenue of $4,911 for Missoula STRs in June 2026. That is a useful performance benchmark, but it carries a seasonal asterisk. A host relying on summer revenue to absorb a year-round tax increase is making an assumption about off-season performance that the data does not support on its own.

For investors modeling a DSCR loan scenario, the tax increase changes the expense side of the equation. DSCR lenders underwrite against the ratio of rental income to carrying costs. A $164 per month increase in property taxes tightens that ratio. On a marginal deal, it can be the difference between a loan that closes and one that does not. Understanding what DSCR lenders actually require before running the numbers matters more than ever in markets where operating costs just shifted.

Who Gets Hit Hardest

The $507,000 figure is the median. Properties above that value face a proportionally larger absolute dollar increase under the flat 1.90% rate.

A $750,000 property, not uncommon near the University of Montana or along the Clark Fork River corridor, will carry a larger city tax increase than the median example reflects. Investors in the higher end of the Missoula market need to model the new tax load against the actual property they are evaluating.

Missoula operates a city registration system for short-term rentals with separate categories for tourist homes (non-owner-occupied STRs) and room rentals within owner-occupied properties. Those owner-occupied hosts may qualify for primary residence treatment under the new framework and face a different tax picture. The full 1.90% rate hits non-owner-occupied tourist homes hardest.

There is also a long-term rental classification in the new Montana law. Properties used as long-term rentals, defined as leases of 28 or more consecutive days for at least seven months of the year, can qualify for the tiered lower rates. The application window for that designation was December 1, 2025 through March 20, 2026. Investors who did not apply during that window are locked into the 1.90% rate until the next application cycle opens.

The National Pattern: Montana Is Not an Outlier

Montana’s approach is notable because it operates statewide through legislation. But the underlying logic, treating STRs more like income-producing commercial property than primary residences for tax purposes, is appearing in assessors’ offices across the country.

Mohave County, Arizona. By July 2026, the Mohave County Assessor had reclassified over 900 STRs from a 10% residential assessment ratio to a 15% commercial assessment ratio. That is a 50% jump in the assessment base before the tax rate even applies. The assessor helped draft Arizona House Bill 2316 to extend the practice statewide. The bill did not advance in committee, but the individual county-level reclassifications stand.

New Mexico. Santa Fe County and at least three other New Mexico counties began reclassifying STRs from residential to nonresidential, using a 183-night rental threshold as the trigger. One documented case saw a property tax bill jump from $2,688 in 2023 to $5,788 in 2024. In 2025, the New Mexico Legislature passed House Memorial 52 requesting a pause on reclassifications while a study group reviewed the approach. The pause did not undo assessments already issued.

Missouri. Some Missouri county assessors used a transient housing classification to push STRs into commercial assessment, tripling some owners’ bills in documented cases. The Missouri Senate passed Senate Bill 1066 on March 25, 2026, on a 30-3 vote, to block commercial reclassification of single-family STR properties. The fact that Missouri needed a law to stop it tells you something about how widely county assessors were already moving.

A review of state legislative records and assessor actions reveals a consistent pattern: tax authorities are examining the income profile of STR properties and concluding those properties should be taxed differently than homes. Montana acted through legislation. Arizona and New Mexico acted through individual assessors. Missouri’s legislature moved to reverse it.

Investors evaluating properties in any state should now be asking whether their county assessor has issued guidance on STR classification. This is a documented trend with documented financial consequences.

What Investors Are Doing About It

Some Missoula investors saw this coming. Montana’s legislative changes were public record after May 2025. Investors who researched the Department of Revenue framework before acquiring properties in 2025 had time to model the 1.90% rate into their numbers. Those who relied on 2024 tax bills as a stable baseline did not.

The investors managing this well are doing a few specific things. First, they are updating their expense models with the actual fall 2026 tax figure, not the 2025 number. Second, they are checking whether the long-term rental classification applies to any of their properties and whether future application cycles are available. Third, they are reviewing DSCR loan terms to understand whether a material increase in carrying costs requires lender notification.

Recalculating cap rate expectations is also on the list. A shift in annual carrying costs directly compresses the cap rate at any given purchase price. Investors who modeled a specific cap rate at acquisition may find the revised expense load has changed the picture enough to revisit hold-versus-exit decisions. The STR cap rate framework for 2026 is a useful starting point for that recalculation.

Questions to Ask Before You Close in Any Market

The Missoula situation is specific. The underlying question applies everywhere. Before closing on any STR property, investors should get clear answers to each of the following.

How is this property currently classified for property tax purposes? Ask the county assessor directly. A prior owner may have held a classification that does not transfer, or may have qualified for an exemption that a new non-owner-occupied purchaser cannot carry forward.

Has the local assessor’s office issued any guidance on STR or second-home classification? This is the Mohave County question. Even without statewide legislation, individual assessors can and do reclassify. A call to the assessor’s office before closing is not optional research. It is standard due diligence.

Is there an exemption the property currently qualifies for that might not transfer? Montana’s long-term rental exemption had a specific application window. Other states have homestead exemptions requiring the owner to occupy as a primary residence. Buyers planning to operate a non-owner-occupied STR cannot carry those exemptions forward.

What does the property tax look like at the new applicable rate versus what the current seller is paying? Model the realistic forward scenario, not the historical bill. The gap between those two numbers is where investors get surprised.

Does your CPA understand how the state treats STRs for property tax classification purposes? Montana’s change is a property tax issue, but the interaction with depreciation schedules and expense deductions is real. A CPA with STR-specific experience will have current insight on these intersections.

The complete guide to buying an Airbnb property covers the broader due diligence framework, including financial underwriting and lender requirements. The tax classification question should now be a standard checklist item in every pre-closing review.

The Bigger Signal for Investors

Missoula’s 127% city tax increase is a local number with a national implication. The Montana law applies to every qualifying property in every city and county in the state. Investors in Bozeman, Billings, and Big Sky face the same reclassification. The city-level dollar figures will vary, but the underlying rate structure is statewide.

More broadly, the political logic of taxing STRs at near-commercial rates has proven durable enough to survive legislative cycles in multiple states and assessors’ offices in multiple counties. That pattern is not reversing.

Property tax is no longer a static input in STR underwriting. It is a variable that requires active monitoring alongside permit requirements, platform fees, and insurance costs. Investors who treat it as fixed are building proformas on an assumption that several state legislatures have already invalidated.

For Missoula specifically, the market fundamentals remain workable for properties purchased at the right basis. StaySTRA data shows strong occupancy and ADR numbers. The city’s STR registration system is functional and does not cap the number of allowed units. The University of Montana provides a stable tourism driver. But the tax picture is materially different from what 2024 underwriting reflected. That difference needs to be in the model before you make an offer.

We do our best to keep our reporting accurate and up to date, but situations evolve and we are only human. Always verify current details directly with local officials and sources before making decisions.