Rental Property Taxes in Arkansas (2026 Guide)

1. Income Tax (Up to 3.9%)

Arkansas levies a graduated individual income tax (AR Code 26-51-201) administered through inflation-adjusted rate tables: a low-income table fully exempts the smallest incomes, a standard table layers in low single-digit rates, and the top marginal rate applies to higher incomes. SheltrIQ models Arkansas at a top rate of up to 3.9% and computes the exact graduated liability from your filing status and income — not a flat estimate.

Arkansas enacted a cut toward a 3.7% top rate for tax year 2026 (Act 1 of the 2026 fiscal session, HB1001), but the Department of Finance & Administration has not yet published the cent-exact 2026 indexed bracket schedule. SheltrIQ therefore conservatively holds the top rate at 3.9% until DFA finalizes its 2026 tables, then updates automatically — so you are never under-withheld against a rate that isn’t official yet.

Net rental income from your federal Schedule E flows to your Arkansas return on AR1000F line 18 (rents, royalties, partnerships, etc.). Arkansas computes income independently rather than simply importing federal AGI, so getting the federal classification right is what makes your Arkansas number right.

2. Capital Gains: the 50% Exclusion

This is a real advantage for Arkansas landlords. Arkansas excludes 50% of net long-term capital gain from state taxable income (AR Code 26-51-815) — so the long-term gain on a rental sale held over a year is taxed on only half its value, at the ordinary graduated rates. Short-term gains get no exclusion and are fully taxed.

Long-term gain (held > 1 year): only 50% is taxable in Arkansas, so the effective state rate on the gain is roughly half the top marginal rate.
Net capital gain above $10,000,000: 100% excluded under AR Code 26-51-815 — relevant only to very large dispositions.
Short-term gain (held ≤ 1 year): no exclusion — fully taxed as ordinary income.

Holding a rental past the one-year mark before selling is therefore not just a federal-rate decision in Arkansas — it also unlocks the state 50% exclusion.

3. Bonus Depreciation: Arkansas Decouples

Important and easy to miss: Arkansas does not conform to federal bonus depreciation. Arkansas uses static, section-by-section conformity to the Internal Revenue Code, and its depreciation statute (AR Code 26-51-428) adopts IRC §168(a)–(j) “as in effect on January 1, 2019” — pointedly excluding §168(k), the bonus-depreciation subsection.

Bonus depreciation (§168(k)) is added back for Arkansas — you cannot take the federal bonus on your state return. Arkansas requires regular MACRS instead, reconciled on Form AR-OI.
Section 179 expensing conforms to the federal limit for property placed in service in 2022 and later (AR Code 26-51-428 adopts §179 as of January 1, 2022).

Because Arkansas adds back bonus depreciation, your Arkansas depreciation basis and accumulated depreciation will diverge from your federal numbers for years. Track the two separately from day one — the difference reverses over the asset’s life and also affects the depreciation-recapture math when you sell.

4. Property Tax: the Amendment 79 Protections Rentals Lose

Arkansas assesses all real property at a 20% assessment ratio of appraised market value (AR Code 26-26-303), then applies local millage. The catch for landlords is Amendment 79 to the Arkansas Constitution, whose two big breaks are reserved for an owner’s principal residence:

Homestead property-tax credit — a flat dollar credit against the tax bill on an owner-occupied principal residence (AR Code 26-26-1118; $500 for the 2024 assessment year, rising to $600 for 2025 and after). A rental gets none of it.
Assessed-value cap — increases in assessed value are capped at 5% per year for a homestead (principal residence), but 10% per year for all other real property, including rentals. Your rental’s taxable value can climb twice as fast.

So a rental in Arkansas pays the full 20%-ratio bill with no homestead dollar credit and only the looser 10% cap on assessment growth. The headline-friendly Arkansas property-tax experience belongs to owner-occupants — budget your rental at the un-credited, faster-growing number.

At purchase, also budget the real property transfer tax of $3.30 per $1,000 of consideration (AR Code 26-60-105) — a $1.10 state tax plus a $2.20 additional tax, due whenever the consideration exceeds $100 (the $2.20 portion is statutorily the purchaser’s). On a $250,000 rental that is roughly $825 — modest by national standards, but a real closing cost.

5. LLC Fees & the $150 Franchise Tax

Holding a rental in an LLC carries one one-time cost and one recurring one in Arkansas:

Formation: the Arkansas Secretary of State Certificate of Organization filing fee is $45 online ($50 on paper).
Annual franchise tax: a flat $150 per year for every LLC (AR Code 26-54-104), filed with the Secretary of State and due May 1. It is not based on income or assets — a single-property rental LLC owes the same $150 as any other. Filing late adds a penalty plus interest.

Calendar the May 1 franchise-tax deadline. The $150 is flat and unavoidable for an active LLC, so the only way it ever costs more is by missing the date and incurring penalty and interest.

6. Rent Control & Security Deposits

Arkansas is among the most landlord-favorable states, and its rules reflect that:

Rent control is banned statewide (AR Code 14-54-1409) — no city or county may control the rent charged on private residential or commercial property. You set rents at market.
Security deposit cap of two months’ rent (AR Code 18-16-304) — more generous to landlords than the one-month cap common elsewhere.
Return within 60 days of the tenancy ending, with a written itemized statement of any deductions (AR Code 18-16-305).
Small-landlord exemption — a landlord who owns five or fewer rental units and does not use a paid third-party manager is exempt from the deposit subchapter entirely (AR Code 18-16-303).

A note on habitability: Arkansas was long the only state with no implied warranty of habitability. Act 1052 of 2021 (AR Code 18-17-502) added minimum residential standards (water, plumbing, electricity, roof, heat/AC), but the remedy is deliberately limited — a tenant whose landlord doesn’t cure within 30 days can terminate the lease and recover the deposit, with no rent-withholding or repair-and-deduct right. Arkansas remains landlord-favorable, but the old "no habitability standard at all" line is no longer accurate.

7. How SheltrIQ Helps Arkansas Landlords

Arkansas rewards landlords who model the state-specific details — SheltrIQ keeps your return on the current rules:

Graduated income modeling — applies Arkansas’s rate tables (AR Code 26-51-201) to your net rental income for an exact state liability, and holds the top rate at 3.9% until DFA finalizes the 2026 schedule rather than guessing at the pending 3.7%.
Bonus-depreciation add-back — tracks the Arkansas-vs-federal depreciation difference (AR Code 26-51-428) so your state basis stays right even though Arkansas decouples from §168(k).
Capital-gains modeling — applies the 50% long-term exclusion (AR Code 26-51-815) when you model a sale, so your projected Arkansas tax on a disposition is accurate.
AI Schedule E classification — sorts each expense to the correct line so the federal return your Arkansas income is built from starts out right.

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