Keep the Tennessee House, Rent It, Buy the Next One
Program and regulatory figures verified September 19, 2026. Details change; confirm your scenario with us.
Owners usually ask whether renting the house out will raise their taxes. In Tennessee the answer is no, unless the house has more than one rental unit, and then it is a large yes.
The assessment question, answered properly
Article II, § 28 of the Tennessee Constitution sets the classifications. Residential property is assessed at twenty-five percent of its value. Farm property is also twenty-five percent. Industrial and commercial property is forty percent.
A single-family home that you move out of and rent to one household remains residential. The assessment ratio does not move, the classification does not change, and the widespread worry that becoming a landlord triggers a reassessment to commercial is misplaced for the ordinary case.
The exception is written into the same sentence of the constitution: residential property containing two or more rental units is hereby defined as industrial and commercial property. So a duplex, a house converted into two units, or a single-family home with a separately rented accessory dwelling crosses into the commercial class at forty percent.
The arithmetic is worth stating. Moving from a twenty-five percent base to a forty percent base raises the assessed value the local rate is applied to by sixty percent, on the same appraised value. That is a materially different annual bill and it is the version of this rule owners should actually be warned about.
Whether a particular accessory arrangement counts as a second rental unit is a question for your county assessor, and it is worth asking before you advertise.
Which landlord rules apply depends on the county
Tennessee's Uniform Residential Landlord and Tenant Act does not apply statewide. Under T.C.A. § 66-28-102 it applies only in counties having a population of more than seventy-five thousand, measured by the 2010 federal census or any subsequent federal census. That threshold covers roughly seventeen counties, including Davidson, Shelby, Knox, Hamilton, Rutherford, Williamson, Sumner, Wilson, Montgomery, Blount, Bradley, Anderson, Madison, Maury, Sevier, Sullivan and Washington.
In the remaining counties the act does not govern, and the relationship runs on the lease and general Tennessee law instead. Deposits, notice periods and remedies can therefore look different depending on which side of a county line the rental sits.
We are lenders, and which rules bind your specific property is a question for a Tennessee attorney. It belongs on this page because it changes how predictable the exit timeline is, and the exit timeline is what we underwrite against.
What changed federally in September
Fannie Mae restructured rental income policy in Announcement SEL-2026-08, dated September 2, 2026, mandatory for all loans with application dates on and after November 1, 2026. Departing residences are now governed by B3-3.8-05; the content formerly at B3-3.1-08 has moved.
Lease agreements are not permitted for any departing residence. Market rent must come from a complete appraisal including market rents, a Form 1007 comparable rent schedule for the occupied unit, or a market analysis tool supported by at least three comparable rentals.
The calculation is gross market rent times 75%, with the remaining 25% absorbed by vacancy and maintenance, less that property's full PITIA. A positive result offsets the departing residence's own payment. It does not become qualifying income. A negative result is added to your debt ratio.
Six months of PITIA reserves are required on the vacated property where the borrower has less than 12 months of property management experience, which describes most first-time landlords.
More on the documentation side on the Form 1007 page.
One interaction to be aware of
If you currently hold a property tax freeze on the departing home, it applies to your principal residence. Converting that property to a rental means it is no longer your principal residence, which affects the freeze on it. Your county trustee is the right place to confirm what happens in your case before you make the change.
The freeze on the house you move into is a separate matter and is established at that home's current tax amount. Background on the freeze page.
When this structure fits
It fits when the departing home covers its own payment at market rent, when you have the reserves, and when the overlap would otherwise be uncomfortable. With Tennessee marketing times stretching in most metros this year, that combination is coming up more often than it did.
It does not fit when the plan assumed rental income would raise what you can borrow, which under the current rule it does not. Compare the alternatives on the structures page.
Freeze eligibility, income limits and landlord obligations are legal and tax questions. Your CPA, a Tennessee attorney, and your county trustee own those answers. We flag them because they change the numbers we underwrite.
Frequently asked questions
Does renting my Tennessee house change its property tax classification?
Not for a single-family home. Article II, § 28 of the Tennessee Constitution assesses residential property at 25% of value, and a one-unit rental stays residential. The exception in that same provision is residential property containing two or more rental units, which is defined as industrial and commercial property and assessed at 40%.
What happens to my assessment if I rent out a duplex in Tennessee?
It moves to the industrial and commercial class at 40% of value, from the residential 25%. On the same appraised value that raises the assessed base by 60%, which flows straight through to the annual bill once the local rate is applied. Your county assessor determines how a specific property is classified.
Does Tennessee's landlord-tenant act apply everywhere in the state?
No. Under T.C.A. § 66-28-102 the Uniform Residential Landlord and Tenant Act applies only in counties with a population over 75,000 according to the 2010 federal census or any subsequent federal census, which covers roughly 17 counties. Elsewhere the lease and general Tennessee law govern instead.
Can I use a lease to document rent on my departing Tennessee home?
Not for applications dated on or after November 1, 2026. Fannie Mae B3-3.8-05 states that lease agreements are not permitted for any departing residence. Market rent must come from a complete appraisal including market rents, a Form 1007, or a market analysis supported by at least three comparable rentals.
What happens to my tax freeze if I rent out the house?
The freeze applies to your principal residence, so converting the property to a rental changes its status. Your county trustee administers the program and is the right place to confirm the consequences for your specific situation before you make the change.
Mike Certo · NMLS #260555 · Cornerstone First Mortgage NMLS #173855 · Equal Housing Lender. Educational content about financing, not a loan commitment and not legal, tax, or real estate advice. Local tax freeze adoption, income limits, and landlord-tenant rules change and depend on your facts; your county trustee, your CPA or a Tennessee attorney, and your real estate agent each handle their own part. Loans are subject to borrower and property qualification.