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Tax season in Phoenix doesn’t show up with flashing lights; it sneaks in while you’re juggling AC tune-ups, surprise repairs, and year-end bills. This year, though, it’s not “business as usual.”
A new Arizona law, effective January 1, 2025, wipes out the old rental tax structure for long-term rentals and changes how your cash flow really works.
If you’re still using last year’s playbook, you could be overcharging tenants, missing refunds, or leaving money on the table. This guide shows you exactly how to stay compliant and keep more profit.
Key Takeaways
- No More Rental TPT: Cities and towns in Arizona can’t charge TPT on residential rentals of 30 days or more.
- Stop Charging Tax: Remove any “rental tax” line from bills for periods beginning January 1, 2025.
- Short-Term Rentals Still Taxed: Stays of less than 30 days remain subject to lodging TPT.
- Desert Deductions Stay: AC work, pool service, and xeriscaping are still valid tax deductions when properly documented.
- License Changes: TPT licenses used only for residential rentals (Code 045) have been automatically canceled, but you must still file your final 2024 return.
The Big Change: The End of Residential Rental Tax (TPT)
For years, Arizona was unusual: cities were allowed to charge tax on residential rent. That chapter is now closed. Starting January 1, 2025, state law blocks cities and towns from adding a sales-type tax (including TPT) to long-term residential rentals of 30 days or more.
What this means for you: If you have a typical 12-month lease, you’re no longer acting as a tax collector for the city. Update your rent amounts, invoices, software, and auto-payments so you stop charging this tax going forward.
The "Pass-Through" Trap: Lease Language & Rent-Inclusive Caution
Many Phoenix leases pass the rental tax (TPT) straight to the tenant. If your lease lists it separately (for example, “Rent: $2,000 + Tax: $46”), you simply stop charging the $46 as of January 1, 2025. If your rent is “tax-inclusive” (a flat $2,046), keeping the exact amount after taxes means you’re quietly increasing your take-home rent.
The law doesn’t force you to lower rent, but not adjusting it can spark disputes or make tenants feel you’re profiting from a tax that no longer exists.
Managing the Transition: The January 1, 2025 Cutoff
Final 2024 Return: Even though the tax ends in 2025, you must file your last residential rental TPT return for 2024 income (including December) and pay anything owed.
License Status: If your TPT license was only for residential rentals (Code 045), it should be automatically closed as of December 31, 2024. Other business codes stay active.
Prepaid Rent: If you charged tax on January 2025 rent that was paid in December, it’s best practice to refund or credit that tax to the tenant.
Deductions with a Desert Twist
The significant tax change gets all the attention, but your real savings come from brilliant deductions. In Phoenix, the desert climate creates special costs that often work in your favor at tax time.
HVAC: Routine AC costs, tune-ups, minor repairs, refrigerant, and filters are usually deductible right away. Replacing the whole unit is a long-term improvement and is typically written off over many years.
Pools: Regular service, chemicals, and minor fixes are expenses; big projects like new plaster or a new heater are usually treated as improvements.
Landscaping/Xeriscaping: Weed control, drip repairs, and yard cleanups can be deductible operating costs. Just keep clear records and receipts.
The Short-Term Rental (STR) Trap
Many owners assume the tax change covers all rentals. It doesn’t.
The 30-Day Rule: The ban only applies to rentals of 30 days or more. Short stays, such as Airbnb, Vrbo, or vacation bookings under 30 days, are still treated as hotel stays for tax purposes.
If you run short-term rentals, you still have to:
- Charge and pay TPT: You must collect the correct state and local lodging taxes and remit them.
- Keep your license active: Only licenses used solely for long-term residential rentals were automatically closed. If you host short-term guests, your TPT license under the lodging category should stay open and in good standing.
Record-Keeping: The First Line of Defense
The elimination of the rental tax does not reduce your obligations for proper documentation — especially if you hope to maximize deductions and survive an audit.
- Digital Trails: Use dedicated property-management software or a separate bank account for rental income/expenses. Avoid commingling personal funds with rental funds.
- Travel Expenses: If you drive to your rental property for inspections, meet contractors, or perform maintenance, the mileage (or actual vehicle expenses) may be deductible — but you must keep a dated log with purpose, miles driven, and address.
- Professional Fees: Expenses such as hiring a lawyer for lease drafting, a CPA for tax preparation, or a property management company are generally deductible as ordinary and necessary business expenses.
These practices remain standard under both federal and Arizona state guidance.
FAQ
Do I still have to charge rental tax on long-term leases in 2025?
No, as of January 1, 2025, Arizona cities can’t charge TPT on residential rentals of 30 days or more.
Do I need to refund the rental tax collected for January 2025?
Yes, if you collected it, you should refund or credit it because the tax no longer applies.
Does the tax repeal apply to my Airbnb or other short-term rentals?
No, bookings under 30 days are still taxed as transient lodging and require TPT collection.
Is my residential rental TPT license still active for 2025?
If it were only for residential rentals (Code 045), it would likely have been canceled for 2025, but you should confirm in AZTaxes.
Do I still have to file a 2024 rental TPT return?
Yes, you must file and pay TPT on the 2024 rental income, including December.
Turn Tax Season Into Your Secret Weapon
This tax season is more than a deadline; it’s a reset button for Phoenix landlords. With rental TPT gone, you can streamline your books, protect your cash flow, and squeeze more profit from every HVAC tune-up, pool invoice, and landscaping bill, if you handle the transition correctly.
You didn’t buy rentals to become a tax specialist or spreadsheet warrior. That’s where the right partner matters. RPM Phoenix combines local market expertise with tax-smart strategy so your properties stay compliant, cash-flowing, and competitive.
Let us turn this year’s tax changes into your next significant advantage. Reach out to us today!
Additional Resources
Phoenix Rental Property Upgrades That Pay Off on Your Landlord’s Insurance
Phoenix Absentee Landlords: How to Successfully Manage Rental Properties from a Distance
