Rental Property Taxes in Minnesota (2026 Guide)
Minnesota is a high-tax state with two rules landlords routinely miss: a bonus-depreciation add-back that claws back 80% of your first-year deduction, and a property classification that taxes rentals at a higher rate than owner-occupied homes. St. Paul also has rent control. Here is what MN landlords need for 2026.
In This 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%.
High earners face an extra layer: a 1% net-investment-income tax on investment income — including capital gains and rental income — above $1 million (Minn. Stat. 290.033), on top of the regular schedule.
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.
Net effect: you get 20% of the federal bonus in year one and recover the rest ratably over five years. A cost-segregation study still pays off — it just defers most of the benefit for Minnesota. §179 amounts above the federal-conformity threshold get the same treatment.
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.
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