The ‘Taylor Swift Tax’ is spreading to 2 other states — and realtors warn it could scare away rich US homeowners. Fair tax or unjust cash grab?

A growing number of states are targeting vacation homes with new taxes that aim to raise revenue and level the housing playing field, but not without backlash.

These so-called ‘second home taxes’ or 'Taylor Swift Tax' are being pitched as solutions to widening housing inequality and strained state budgets. However, high-end real estate agents and some economists warn they could discourage spending, drive away affluent homeowners and even reduce housing supply in the long run.

Here’s what these new taxes do, who’s affected, and how buyers and second-home owners are already responding.

What is the ‘Taylor Swift Tax’?

Rhode Island’s newly enacted levy on second homes, dubbed the ‘Taylor Swift Tax’ because of the pop star’s $28 million Watch Hill beach house, went into effect this summer. Swift bought the lavish abode in 2013 for $17.75 million.

State lawmakers are seeking to address the housing affordability crisis, which Rhode Island Senator Meghan Kallman suggests is “upside-down.” "By asking these owners to pay their fair share, Rhode Island can generate much-needed revenue and prevent cuts to essential services like healthcare and education," Kallman said.

The new surcharge applies to non-primary residences valued at over $1 million. For any home not occupied for at least 183 days a year, the state now charges $2.50 per $500 in assessed value above the $1 million mark. That’s in addition to existing property taxes.

Swift’s Watch Hill home, for example, carries estimated property taxes of around $201,000 per year. The new fee adds another $136,442 annually, raising her total property tax bill to roughly $337,000, which folks in the area suggest she rarely visits.

Real estate agents argue this unfairly penalizes part-time residents who already pay local taxes but don’t rely heavily on services like schools, police or sanitation. “These are people who just come here for the summer, spend their money and pay their fair share of taxes,” Donna Krueger-Simmons, a sales agent with Mott & Chace Sotheby’s International in Watch Hill, told CNBC. “They’re getting penalized just because they also live somewhere else.”

Why states are targeting vacation homes

States facing budget shortfalls see an opportunity in high-value second homes. These properties are typically owned by out-of-state buyers, require fewer public services and can generate significant tax revenue.

At the same time, home prices have soared, especially in desirable coastal or mountain regions, fueling resentment in local communities where full-time residents are priced out.

The combination of tight budgets and growing housing inequality has led to new policies aimed at what lawmakers see as ‘under-taxed’ wealth.

In Rhode Island, the second-home surcharge was paired with an increase in the state’s real estate conveyance tax. Starting in October, sellers will pay an extra $3.75 per $500 of sale value above $800,000.

Critics say these moves could hurt small businesses and local economies that rely on seasonal spending.

“You’re just hurting the people who support small business,” said Lori Joyal, a broker with Lila Delman Compass in Watch Hill. “You’re chasing away the people who spend most of the money in these towns.” Similar moves in other states

Montana recently passed a tiered property tax plan that increases rates for second homes and short-term rentals while lowering rates for full-time residents. For properties worth more than four times the state’s median home price, tax rates could rise to 1.9%, compared to a base rate of 0.76%.

The Montana Department of Revenue expects the changes, which take effect in 2026, will raise second-home tax bills by an average of 68%.

Valerie Johnson, a broker with PureWest Christie’s in Bozeman, suggests many buyers are now waiting to see the tax bills before making any decisions.