How is a single-family home that is rented out long-term, or a duplex where the owner lives in one half and rents the other half, classified for Tennessee property-tax purposes?

Subject

How a single-family rental home and an owner-occupied duplex with one rented half are classified under Tennessee Constitution Article II, § 28 and Tenn. Code Ann. § 67-5-501.

Plain-English summary

Senator Becky Duncan Massey asked the AG two property-tax classification questions that come up constantly in middle-Tennessee assessor offices. Tennessee's constitution and tax code classify property as residential or as industrial and commercial, with very different assessment ratios (residential at 25% of value, industrial and commercial at 40%). The classification turns on a phrase in Article II, § 28: "residential property containing two (2) or more rental units is hereby defined as industrial and commercial property." So one rental unit equals residential, two or more equals commercial.

Question one asked about a stand-alone single-family home rented for periods longer than 30 days. The AG said it is generally residential. The home contains one rental unit. The 30-day threshold matters because shorter-term arrangements may be classified differently as transient occupancies, but a long-term rental of a single-family home stays in the residential category.

Question two asked about a duplex where the owner lives in one half and rents the other. The AG said it is generally residential too. Even though the building has two units, only one is being rented. The other is owner-occupied and is not a rental unit at all. So the property contains one rental unit and qualifies for residential classification.

The AG flagged an important caveat. There is no bright-line rule that every stand-alone home or every owner-occupied duplex is residential. In Spring Hill, L.P. v. State Board of Equalization, the Tennessee Court of Appeals held that 44 separately parceled single-family homes were industrial and commercial property, not residential, because they were part of a single low-income housing development owned and operated by one entity as a rental enterprise. The court rejected the taxpayer's argument that physical conjoinment is the test. So the assessor has to look at the full picture: how the property is owned, managed, and used. A single-family home owned by an individual landlord and rented to one family will almost always be residential. A portfolio of separately parceled homes owned and managed as one rental development might be commercial.

What this means for you

If you own a single-family home and rent it out long-term

Your property is generally classified as residential and assessed at 25% of value. The "two or more rental units" trigger does not catch you because your property has one rental unit, the home itself. If your assessor has classified the home as industrial and commercial, you have grounds to appeal, but the burden is on you to show that the property is not part of a larger common-ownership development that the courts treat as a commercial rental operation.

If you own multiple single-family rentals on separate parcels, your situation is more nuanced. If they are scattered properties operated independently, each will typically stay residential. If they are part of a planned development, owned and managed as one operation, the Spring Hill case shows assessors and courts can treat the cluster as commercial.

If you own a duplex and live in one half

Your property is generally residential. The half you occupy is not a rental unit; the half you rent is one rental unit. So you have one rental unit on the parcel and qualify for the 25% residential assessment. Renting out a finished basement or accessory unit to a single tenant does not normally push you over the line, but it depends on what is on the parcel and how the units are configured. If you are unsure, ask your assessor for a written explanation of how the parcel is being classified.

If you own a duplex and rent out both halves

That is two rental units. Under Article II, § 28 the property is defined as industrial and commercial and assessed at 40%. The constitutional language is direct.

If you own a low-income housing development with separately parceled single-family homes

The Spring Hill case is your guide. Even though each home is technically a stand-alone single-family rental, courts can classify the development as industrial and commercial property if the homes are part of one project, owned and managed by one entity, and operated as a unified rental enterprise. Talk to a property-tax attorney before assuming residential treatment, especially if a reassessment is coming.

County assessors of property

The opinion does not give you a bright-line rule. It restates the statutory text and reminds you that you have to consider all facts and circumstances. A single-family home rented to one family is residential. An owner-occupied duplex with one half rented is residential. A 44-home subdivision owned and managed as one rental enterprise is commercial. Document the facts you considered when classifying boundary cases. Spring Hill is the controlling appellate authority on the "two or more rental units" trigger and you should expect taxpayers and your appraisers to argue both sides of it.

Property-tax appeal practitioners

The classification rule is constitutional, not just statutory, so the analysis starts with Article II, § 28. The codification at § 67-5-501(11) (residential definition) and § 67-5-501(4) (industrial and commercial definition) tracks the constitution. Spring Hill is the must-cite Court of Appeals case for the proposition that physical conjoinment is not the test and that ownership and management as a single rental enterprise can convert separately parceled single-family homes into industrial and commercial property.

Common questions

What is a "rental unit" exactly?

The opinion does not define it beyond the statutory and constitutional language, but the common-sense reading is a unit being held out for rent or actually rented to a tenant. An owner-occupied unit is not a rental unit. The classification turns on how the units on the parcel are being used or held for use.

Does the 30-day threshold matter?

The opinion addresses long-term rentals (more than 30 days). Short-term transient rentals (such as vacation rentals booked through online platforms for stays of less than 30 days) involve a different set of rules and tax treatment that the opinion does not address. If you rent your home only by the night or week, the residential classification analysis here may not apply directly.

What if my duplex is on one parcel but is two separately metered, separately addressed units?

Generally still residential if you live in one and rent the other, because there is still only one rental unit on the parcel. The analysis is "rental units," not "physical units."

Can the assessor change my classification without notice?

Tennessee assessors generally have to send notice of reassessment. If your property is reclassified from residential to industrial and commercial (or vice versa), check the notice for the reasoning and the appeal deadline. Classification disputes go to the county board of equalization first, then to the State Board of Equalization, then to court.

Is the assessor making a value judgment about my property?

Classification is not the same as valuation. Classification puts your property into a category (residential, industrial and commercial, farm, public utility) that determines the assessment ratio. Valuation determines fair market value. You can challenge either.

What about a single-family home I have on Airbnb full-time?

That is a short-term rental scenario the opinion does not cover. Long-term rental classification analysis does not automatically apply to short-term operations. Some Tennessee localities are also developing local rules and ordinances about short-term rentals. Get specific advice for that situation.

Background and statutory framework

Tennessee Constitution Article II, § 28 establishes the property tax classification scheme. Real property is divided into classes assessed at different ratios of value. Residential property is assessed at 25%. The constitution expressly provides: "residential property containing two (2) or more rental units is hereby defined as industrial and commercial property," meaning that property is assessed at 40% rather than 25%.

The codification follows the constitutional text. Tenn. Code Ann. § 67-5-501(11) defines residential property as "all real property that is used, or held for use, for dwelling purposes and that contains not more than one (1) rental unit." It then states that "[a]ll real property that is used, or held for use, for dwelling purposes, but that contains two (2) or more rental units, is defined and shall be classified as 'industrial and commercial property.'" Section 67-5-501(4), defining industrial and commercial property, mirrors that statement.

The case law confirms that the classification turns on the number of rental units on a parcel, not on whether the units are physically conjoined. In Spring Hill, L.P. v. State Board of Equalization, No. M2001-02683-COA-R3-CV, 2003 WL 23099679, at 17-18 (Tenn. Ct. App. Dec. 31, 2003), 44 single-family homes on separately parceled lots were classified as industrial and commercial property because they were part of one low-income housing development, owned and managed by the same entity. The court rejected the taxpayer's argument that "the determinative factor is whether the residences are physically conjoined." So the assessor's analysis cannot be limited to a structural test; it has to look at the rental enterprise.

The combined effect of the constitution, the code, and Spring Hill: a single-family home rented long-term will normally be residential, an owner-occupied duplex with one rented half will normally be residential, but assessors must consider all facts and circumstances and may classify a portfolio of stand-alone homes as commercial when they function as a single rental enterprise.

Citations

• Tenn. Const. art. II, § 28 (property tax classification: residential at 25%, "two or more rental units" defined as industrial and commercial)
• Tenn. Code Ann. § 67-5-501(4) (industrial and commercial property definition)
• Tenn. Code Ann. § 67-5-501(11) (residential property definition: "not more than one (1) rental unit")
• Spring Hill, L.P. v. State Board of Equalization, No. M2001-02683-COA-R3-CV, 2003 WL 23099679 (Tenn. Ct. App. Dec. 31, 2003) (separately parceled single-family homes operated as one rental enterprise classified as industrial and commercial)

Source

• Landing page: https://www.tn.gov/attorneygeneral/opinions.html
• Original PDF: https://www.tn.gov/content/dam/tn/attorneygeneral/documents/ops/2025/op25-016.pdf

Original opinion text

STATE OF TENNESSEE
OFFICE OF THE ATTORNEY GENERAL
August 25, 2025
Opinion No. 25-016
Classification of Residential Property

Question 1

Pursuant to Article II, Section 28, of the Tennessee Constitution, which states that residential property is to be assessed at 25% of its value, "provided that residential property containing two (2) or more rental units is hereby defined as industrial and commercial property," what is the appropriate tax classification for a single-family, stand-alone property that is being rented for periods longer than thirty (30) days?

Opinion 1

A single-family, stand-alone property that is being rented for periods longer than thirty days generally will be classified as residential, subject to the caveats discussed below.

Question 2

Pursuant to Article II, Section 28, what is the appropriate tax classification for a duplex where one half is rented and the other half is occupied by the owner?

Opinion 2

A duplex where one half is rented and the other half is owner-occupied generally will be classified as residential, subject to the caveats discussed below.

ANALYSIS

Under Article II, Section 28, "residential property containing two (2) or more rental units is . . . defined as industrial and commercial property." This provision has been codified in Tenn. Code Ann. § 67-5-501(11), which defines residential property as "all real property that is used, or held for use, for dwelling purposes and that contains not more than one (1) rental unit." Similar to Article II, Section 28, subsection (11) states that "[a]ll real property that is used, or held for use, for dwelling purposes, but that contains two (2) or more rental units, is defined and shall be classified as 'industrial and commercial property.'" See also Tenn. Code Ann. § 67-5-501(4) (containing a similar statement in the definition of "industrial and commercial property").

In accordance with these provisions, a single-family, stand-alone property generally will be classified as residential when it is being used as a long-term rental. Similarly, an owner-occupied duplex generally will be classified as residential if the owner is leasing the other half of the duplex to another party. In each case, the property contains only one rental unit and, thus, qualifies for the residential tax classification.

Nevertheless, the courts have recognized circumstances where single-family, unattached homes may be considered industrial and commercial property. In Spring Hill, L.P. v. State Board of Equalization, No. M2001-02683-COA-R3-CV, 2003 WL 23099679, at 17-18 (Tenn. Ct. App. Dec. 31, 2003), for example, the court held that 44 single-family homes on separately parceled lots should be classified as industrial and commercial property, rather than residential property, because the rental units were part of the same low-income housing development and were owned and managed by the same entity. The court rejected the taxpayer's argument that "the determinative factor is whether the residences are physically conjoined." Id. at *18.

Accordingly, there is no bright-line rule that a single-family, stand-alone home or an owner-occupied duplex will always be classified as residential. Rather, the property assessor should consider all the facts and circumstances of the rental property's characteristics to make a proper classification of the property.

JONATHAN SKRMETTI
Attorney General and Reporter

JAMES P. URBAN
Senior Deputy Attorney General

MARY ELLEN KNACK
Senior Assistant Attorney General

Requested by:
The Honorable Becky Duncan Massey
State Senator
425 Rep. John Lewis Way North
Suite 776 Cordell Hull Building
Nashville, Tennessee 37243