Rental Property Taxes in Arizona (2026 Guide)

1. The End of City Rental Tax (TPT)

The headline change for Arizona landlords: cities can no longer charge transaction privilege tax (TPT) on long-term residential rentals. S.B. 1131 (2023) amended A.R.S. §42-6004, and effective January 1, 2025 owners should no longer collect or remit any city TPT on residential stays of 30 days or more.

• State and counties never taxed residential rentals — this was always a city-level tax, so the change removes the only rental TPT that applied.
• Short-term/vacation rentals are still taxed — stays under 30 days remain subject to state transient-lodging TPT plus county and city hotel taxes, and operators must still license.

2. Property Tax in Arizona

Arizona property tax is county-administered and relatively low — roughly 0.45%–0.65% effective, among the lowest in the country (the figure varies by county and year). Residential rental property is Legal Class 4 with a 10% assessment ratio (A.R.S. §42-12004).

• Tax is on Limited Property Value (LPV), not full cash value, and Prop 117 caps annual LPV growth at 5% (A.R.S. §42-13301) — a built-in brake on assessment increases.
• No Class 3 benefits for rentals — the owner-occupied Homeowner Rebate (State Aid to Education, capped at $600/parcel) applies only to Class 3 primary residences, not Class 4 rentals.

3. Arizona State Income Tax on Rental Income

Arizona taxes income at a flat 2.5% (A.R.S. §43-1011), one of the lowest flat rates in the nation. AZ taxable income starts from your federal AGI, so net rental income flows through from your federal Schedule E.

• Bonus depreciation conforms (net) — Arizona effectively allows full federal bonus depreciation for assets placed in service after 2016 via an offsetting add-back and subtraction, so the net AZ adjustment is zero. Unlike many states, you do not lose or defer the deduction.
• Static conformity date — Arizona conforms to the IRC as of January 1, 2025 and updates the date each year, so confirm the current conformity date when a new federal law lands.

4. Real Estate Transfer Tax (None)

Arizona has no real estate transfer tax — it is constitutionally prohibited (Ariz. Const. Art. IX, §24, the voter-approved Prop 100 of 2008). The only charge at recording is a flat $2 fee (A.R.S. §11-1132) plus the Affidavit of Property Value. This meaningfully lowers your acquisition and disposition costs versus high-transfer-tax states.

5. LLC Fees (No Annual Report)

Arizona is one of the few states where LLCs file no annual report and pay no annual fee — only corporations file annual reports. Formation is a one-time $50 Articles of Organization fee.

New LLCs must complete a publication requirement (publish notice for three consecutive weeks within 60 days of formation) unless the statutory agent’s address is in Maricopa or Pima County, which are exempt.

6. Rent Control

Arizona prohibits local rent control. A.R.S. §33-1329 preempts the power to control rents on private residential property — cities and towns, including charter cities, may not impose it.

7. Security Deposit Rules

Arizona's Residential Landlord and Tenant Act sets the deposit rules:

• Cap of 1.5 months’ rent (A.R.S. §33-1321) — you may not demand more.
• Return within 14 days (excluding weekends and legal holidays) after the tenancy ends, possession is delivered, and the tenant demands it, with an itemized statement of any deductions.
• Tax treatment — a deposit is not income when received; include it only in the year, and to the extent, you keep it for damages or unpaid rent.

8. How SheltrIQ Helps Arizona Landlords

Arizona is low-friction on taxes — SheltrIQ helps you keep it that way:

• Depreciation schedules — auto-builds 27.5-year MACRS and tracks bonus depreciation, which Arizona fully allows.
• AI Schedule E classification — sorts each expense to the right line so your low 2.5% AZ tax is computed on an accurate federal base.
• Short- vs long-term flagging — helps you keep TPT obligations straight now that long-term rentals are exempt but short-term stays are not.
• Estimated-payment reminders — keeps quarterly federal and AZ payments on schedule.