Arizona’s Tax Reform and its Effect on Real Estate

The single most significant tax cut in the state gives tax relief to everyone in Arizona – small businesses, working families, and veterans alike. 


While the cut for taxpayers is impressive by itself, there are also reductions in property taxes which will considerably impact Arizona real estate. 


Of note, the new tax reform reduces property taxes by 10% for small businesses and gives an increased rebate to homeowners.  The state now covers as much as 50% of homeowner’s primary property taxes. 



Effect on Commercial Property 


The new tax reform reduces the property tax assessment ratio for commercial properties to 17.5% in 2022 and 17% in 2023. Interestingly, the final law continues this trend, further reducing the rate to 16.5% in 2024 and 16% in 2025, and so on. 


Reduction in commercial property and small business taxes positions Arizona as a good choice for business relocations and start-ups. The new tax reductions have prevented an outlandish 77.7% tax increase for small businesses. Instead, there will be a maximum tax rate of 4.5%. Furthermore, by combining the new reform with Foreign-Trade Zones which offer additional property tax incentives, big investments are in the future for Arizona. 



Effect on Residential Property


Beginning in TY 2022, the state budget accounts for the adjustment of homeowners’ rebates from 47.19% to a flat 50.0%. With the new tax code, both single and married taxpayers are now also permitted to deduct as much as $10,000 in state and local property taxes that they have paid. 


Moreover, the tax reform creates a non-refundable affordable housing tax credit equal to at least 50% of the federal low-income housing credit for qualified projects. To qualify, these housing projects must begin operations after June 30, 2022.


The new tax reform will significantly impact the real estate ownership for persons going through both divorce and interest deduction. Previously, homeowners could deduct up to $1 million in interest paid on a mortgage loan, but the new law limits the loan amount to $750,000. With federal taxes, a divorced party staying in the marital residence can deduct the mortgage interest on an additional $250,000.