Rental Property Taxes in Minnesota (2026 Guide)

1. State Income Tax (Plus the 1% Surtax)

Minnesota's income tax is graduated 5.35% / 6.80% / 7.85% / 9.85%, starting from federal AGI — one of the highest top rates in the country. Capital gains have no preferential rate; a rental-sale gain is taxed as ordinary income up to 9.85%.

2. The 80% Bonus-Depreciation Add-Back

This is the most-missed Minnesota item. The state decouples from federal bonus depreciation (§168(k)) with a specific mechanic: in the year you place an asset in service, add back 80% of the federal bonus, then subtract one-fifth of that add-back in each of the next five years.

3. Property Tax & Rental Classification

Minnesota applies a class rate to taxable market value before local levies (Minn. Stat. 273.13), and rentals sit in a higher class than owner-occupied homes. Statewide effective rates run around 1.0%–1.1%.

• Apartments (4+ units, class 4a) and small non-homestead residential (class 4b) carry a 1.25% class rate.
• Owner-occupied homestead (class 1a) is 1.00% on the first tier — and gets a market-value exclusion that does not apply to rentals.
• A rental therefore pays on full market value at the higher class rate, with no homestead break.

4. Deed Tax & Mortgage Registry Tax

• Deed tax — 0.33% of price ($1.65 per $500); Hennepin and Ramsey counties add a small environmental fee for ~0.34% (Minn. Stat. 287.21).
• Mortgage registry tax — 0.23% of the financed amount (0.24% in Hennepin/Ramsey).

5. LLC Annual Renewal ($0 On Time)

A Minnesota LLC renews free if filed on time, due December 31 each year — one of the few states with no annual fee. Miss it, though, and the LLC is administratively dissolved on January 1; reinstatement runs $25–$45.

6. Rent Control (Local — St. Paul)

Minnesota permits local rent control by voter referendum. St. Paul passed a 3% annual cap in 2021. The original new-construction carve-out was amended — as of June 13, 2025, the city permanently exempts all multifamily built after 2004 (first occupancy after Dec 31, 2004), and allows a partial increase after a just-cause vacancy. Confirm the local ordinance before buying in St. Paul.

7. Security Deposit Rules

• No statewide cap on the deposit amount (some cities, e.g. Minneapolis, cap it at one month's rent).
• Interest required — 1% simple interest per year (Minn. Stat. 504B.178).
• Return within 21 days of the tenancy ending, with an itemized statement of any deductions.

8. How SheltrIQ Helps Minnesota Landlords

Minnesota's add-back mechanic and high rates make accurate tracking essential — SheltrIQ handles both:

• Bonus-depreciation tracking — applies the 80%-add-back / 20%-over-5-years schedule and keeps a separate Minnesota basis so it reconciles every year.
• State income modeling — projects the graduated rate and flags the 1% net-investment-income surtax for high earners.
• AI Schedule E classification — sorts each expense to the right line so your MN income starts from an accurate federal return.
• Deadline reminders — keeps the December 31 LLC renewal and estimated-payment dates on your radar.