6 most tax-advantaged and disadvantaged states for landlords
6 most tax-advantaged and disadvantaged states for landlords
Noel Krasomil for TurboTenantThu, February 26, 2026 at 3:00 PM UTC
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Aerial view of the high-rise buildings and waterfront area by the Cumberland River in Nashville, Tennessee. - Bilanol // Shutterstock6 most tax-advantaged and disadvantaged states for landlords
Between unrelenting inflation, rising eviction rates, and increasing insurance premiums, turning a profit as a landlord is tough enough. Taxes, an often overlooked factor, also heavily influence whether “profit” becomes money available to reinvest or a sum that you hand over to your local government.
Here’s an example: A landlord in State A with a $2.5 million portfolio generating $7,500 in monthly profit would pay approximately $11,250 in combined annual property and state income taxes. In State B, however, that same portfolio would generate roughly $61,500 in annual tax liability. For two otherwise identical operations, that massive $50,250 gap comes down to geography alone. All other factors aside, which state would give you the better chance of running a profitable rental operation? Seems like an easy answer.
Below, TurboTenant ranks the three most and least tax-advantaged states for landlords, explains the factors behind those rankings, and shows you exactly how those tax differences affect real-world rental portfolios.
Factors that play into a state being “tax-advantaged”
But before jumping in, it helps to understand the tax categories considered when creating this list. They include:
Property tax: Local governments assess property taxes based on value and rate, and landlords owe them regardless of occupancy or profitability. Higher assessments or aggressive mill levies can steadily reduce net operating income and squeeze margins over time.
State income tax: Most states tax rental profits as personal income. Higher marginal rates reduce take-home earnings, particularly for owners with multiple properties or strong monthly cash flow.
State corporate income tax: Ownership structure also affects tax exposure. Landlords who hold property in an LLC or corporation may face corporate income taxes, depending on whether the entity passes income through to its owners or pays taxes at the entity level.
Capital gains tax: Selling a rental property often triggers state-level capital gains tax. Higher rates reduce net proceeds and limit how much capital an investor can redeploy.
Estate/inheritance tax: Long-term investors should also consider wealth transfer rules. Estate or inheritance taxes can affect succession planning and the total value passed to heirs.
3 most tax-advantaged states for landlords
The following states give landlords a measurable tax advantage, helping them keep more profit and operate with fewer long-term financial obstacles:
1. Tennessee
Remember State A in the earlier example? That’s Tennessee.
The Volunteer State earns its spot atop our list for tax-advantaged landlords because the government does not tax personal income and keeps property taxes among the five lowest in the U.S. The one caveat: Landlords can only enjoy that 0% state income tax treatment when rental profits flow through a pass-through entity like an LLC taxed as a sole proprietorship or a partnership, or an S-corp. (If they opt for a C-corp, they’ll have to pay a steep 6.5% state corporate income tax.)
Beyond its tax policies, Tennessee is more landlord-friendly than most states because demand continues to flow in. From 2020 to 2025, Tennessee’s population grew 5.8%, while the statewide median gross rent jumped an eye-opening 42.5%. Not to mention the state issued an estimated 44,440 building permits in 2025, meaning while new supply is coming online, demand still has room to keep well-priced rentals occupied.
Property tax: 0.45% effective rate
State income tax: 0%
State corporate income tax: 6.50%
Capital gains tax: 0%
Estate/inheritance tax: None
Average annual taxes for a $2.5M portfolio: $11,250
2. Nevada
Even though Nevada’s tourism industry has cooled in recent years, the state ranks as the second overall most tax-advantaged market for landlords in 2026. The state’s effective property tax rate is just 0.47%, and it imposes no state income, corporate income, capital gains, or estate taxes. As a result, landlords can structure their rental businesses however they see fit and won’t be on the hook for any state-level levies aside from property taxes.
Nevada also presents a relatively straightforward operating environment, especially if you own rental property in the Las Vegas-Reno spine, where most of the state’s renters reside. The state largely blocks local rent control to ensure pricing decisions align with the market. Furthermore, demand in Clark County grew by 5.8% from 2020 to 2024, meaning competitively priced units typically don’t linger on the market.
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Property tax: 0.47% effective rate
State income tax: 0%
State corporate income tax: 0%
Capital gains tax: 0%
Estate/inheritance tax: None
Average annual taxes for a $2.5M portfolio: $11,750
3. Wyoming
Wyoming is windy, sparsely populated, and rarely tops relocation lists, yet landlords love its tax structure nevertheless. Like Nevada, the only ongoing state-level tax hit is property tax, which rings in at a palatable 0.57% effective rate. To boot, Wyoming also forgoes personal income, corporate income, capital gains, and estate taxes, making annual expenses incredibly easy to predict and plan for. The Cowboy state lives up to its billing with a live-and-let-earn approach to taxation.
Taxes aside, property owners in Wyoming rarely face overbearing bureaucratic hurdles or local regulations. For example, if a relationship with a tenant goes off the rails, the state’s legal process can move quickly, allowing landlords to complete uncontested evictions in roughly 3 to 4 weeks. Finally, Demand in this rugged and rural state also stays steadier than people expect, with vacancy rates hovering around a lower-than-national-average 5.5% statewide.
Property tax: 0.57% effective rate
State income tax: 0%
State corporate income tax: 0%
Capital gains tax: 0%
Estate/inheritance tax: None
Average annual taxes for a $2.5M portfolio: $14,250
3 most tax-disadvantaged states for landlords
In these states, landlords face higher property and income taxes that stack the cards against them, narrowing margins and limiting long-term portfolio flexibility:
1. New Jersey
Without further ado, State B: New Jersey.
While landlords here surely appreciate strong renter demand, high incomes, and low vacancy rates, the Garden State’s annual tax bill lands like a gut punch. While a sky-high 2.23% effective property tax rate alone can crush cash flow, the state piles on higher income taxes and ordinary-income treatment for capital gains to really lock in the pain.
Sure, New Jersey is attractive to renters, but local laws make many property owners second-guess getting into landlording. For starters, many municipalities across the state enforce rent control that limits a landlord’s ability to adjust rental rates to the market. Thankfully, vacancy rates were around 3.6% in 2024, meaning rental properties rarely sit empty for long. At least there’s a silver lining.
Property tax: 2.23% effective rate
State income tax: 1.40% to 10.75%
State corporate income tax: 6.5% to 11.5%
Capital gains tax: 1.40% to 10.75% (taxed as ordinary income)
Inheritance tax: 0% to 16%
Average annual taxes for a $2.5M portfolio: $61,483
2. Illinois
Not too far behind New Jersey comes Illinois, where landlords often fear the property tax bill more than a late-night maintenance emergency. In Illinois, a 2.07% effective property tax rate does most of the damage. A flat 4.95% income tax, which taxes capital gains as ordinary income, and estate taxes up to 16%, ramp up the overall burden. These numbers show how a rental portfolio earning $90,000 in revenue can still require a staggering $56,205 in taxes.
Though Illinois bans rent control statewide, the landlord-friendly regulations end there. For example, in Chicago, a contested eviction can stretch to around 150 days before the sheriff restores possession. And in Cook County as a whole, the Just Housing Amendment also limits how landlords can consider criminal history when selecting tenants. Combine those hurdles with Illinois’ steep rental-related taxes, and you’re left with an unforgiving climate for landlords.
Property tax: 2.07% effective rate
State income tax: 4.95% flat rate
State corporate income tax: 9.50% combined rate
Capital gains tax: 4.95% (taxed as ordinary income)
Estate tax: Estate tax up to 16%
Average annual taxes for a $2.5M portfolio: $56,205
3. Connecticut
Ringing in just behind Illinois, Connecticut ranks as the third least tax-advantaged state for landlords. The Nutmeg State’s effective property tax rate sits around 1.92%, third-highest in the country, behind, you guessed it, New Jersey and Illinois. Pair that with the state’s substantial personal and corporate income taxes, capital gains, and estate taxes, and landlords here will need to play their cards right to protect their returns.
On top of the excessive taxes, Connecticut is heavily tenant-friendly, especially in bigger towns. For example, the state does not allow classic citywide rent control. However, it does require many municipalities to run Fair Rent Commissions that can step in on “excessive” rent increases after a complaint. On top of that, policymakers keep flirting with tighter rent-hike limits, which adds regulatory risk for landlords who need to raise rents to run a viable rental business.
Property tax: 1.92% effective rate
State income tax: 3.00% to 6.99%
State corporate income tax: 7.50%
Capital gains tax: 3.00% to 6.99% (taxed as ordinary income)
Estate tax: Up to 12%
Average annual taxes for a $2.5M portfolio: $54,291
What this means for rental investors
State taxes will not make or break every portfolio, but they can quietly shape long-term results. The difference between Tennessee and New Jersey in our earlier example is not trivial. And it doesn’t take a rental accounting genius to understand that a roughly $50,000 annual gap will compound quickly over 5, 10, or 20 years. It bears repeating: Geography alone can materially determine what a landlord ultimately keeps or returns to the government.
Still, taxes represent one variable in a larger equation. Strong demand, population growth, vacancy trends, and regulatory climate all influence performance. A low-tax state does not guarantee success, and a high-tax state does not guarantee failure. Investors who weigh tax exposure alongside market fundamentals typically make much better decisions over the long run.
Before committing capital, landlords should ask clear, practical questions. What will I owe each year in property and income taxes? How will capital gains treatment affect my exit strategy? Do estate or inheritance rules align with my long-term plan? The landlords who answer these questions thoughtfully will protect cash flow, preserve flexibility, and position their portfolios to flourish over time.
This story was produced by TurboTenant and reviewed and distributed by Stacker.
Source: “AOL Money”
