Rental Property Taxes in Tennessee (2026 Guide)

1. No State Income Tax on Rental Income

Tennessee has no state income tax. The Hall income tax on interest and dividends was fully repealed effective tax year 2021, so your rental income — and any gain when you sell — carries zero Tennessee income tax. This is the headline advantage of owning rentals in TN.

2. Property Tax & the Assessment-Ratio Split

Tennessee property taxes are among the lowest in the country — a statewide effective rate around 0.5%. Rates are set locally, so the real number varies by county. The subtle part is the assessment ratio (TCA 67-5-801), which depends on how many units you rent:

• 1 rental unit (a single house, condo, or one side of a duplex) is residential and assessed at 25% of appraised value (TCA 67-5-501(11)).
• 2 or more rental units (a fully-rented duplex, triplex, or apartment building) is statutorily defined as commercial property and assessed at 40% (TN Const. Art. II §28) — a 60% higher taxable base for the same value.
• Relief and tax-freeze programs are owner-occupant only — no benefit to investment property (TCA 67-5-702).

3. Franchise & Excise Tax (and the FONCE Exemption)

Hold rentals in an LLC, LP, or corporation and you are generally subject to Tennessee's franchise & excise (F&E) tax: 6.5% excise on TN net earnings plus a 0.25% franchise tax on net worth (minimum $100). But two exemptions cover many family rental LLCs:

• FONCE (Family-Owned Non-Corporate Entity) — exempt if the entity is ≥95% family-owned AND at least two-thirds of its activity is passive investment income such as residential rent (TCA 67-4-2008). Key limit: the residential property cannot exceed 4 units per location and commercial rent does not count toward the passive test.
• OME (Obligated Member Entity) — elect with the Secretary of State and give up the LLC's liability shield in exchange for the exemption.
• File Form FAE 183 annually to claim either exemption — it is not automatic.

4. Transfer & Recordation Tax

• Realty transfer tax — $0.37 per $100 of consideration (0.37%), TCA 67-4-409.
• Mortgage recordation tax — $0.115 per $100 of indebtedness, with the first $2,000 exempt.

5. LLC Fees (Higher Than Most States)

A Tennessee LLC pays an annual report fee of $50 per member, with a $300 minimum (max $3,000) — TCA 48-249-1007. That floor is higher than most states' flat fees, and the F&E tax above can apply on top unless you qualify for FONCE/OME.

6. Rent Control

Tennessee prohibits local rent control statewide (TCA 66-35-102) — no county or municipality may control the rent charged for residential property. You set rents at market.

7. Security Deposit Rules

Tennessee's Uniform Residential Landlord and Tenant Act (TCA 66-28-301) governs deposits in counties with a population over 75,000; smaller counties fall under the lease and common law.

• No statutory cap on the deposit amount.
• Held in a separate account at a regulated bank, with the location disclosed to the tenant.
• The tenant has a right to inspect for damages, with set notice and timing windows.

8. How SheltrIQ Helps Tennessee Landlords

With no state income tax, the Tennessee game is maximizing federal deductions and staying on top of entity filings — exactly what SheltrIQ handles:

• Maximized federal deductions — AI Schedule E classification and full depreciation schedules so you capture every write-off on the return that actually matters in TN.
• Depreciation and cost-seg support — builds 27.5-year MACRS and tracks improvements and personal property.
• Entity-deadline reminders — keeps the $300 annual report and the FAE 183 / F&E filings on your radar so a FONCE exemption is not lost to a missed form.
• Disposition modeling — projects federal tax on a sale with no Tennessee income-tax layer to muddy it.